Political Risk Cover
What is political risk cover?
When you conduct business internationally your sales can often be affected by changing legislation, contract breaches, expropriation (e.g., government confiscation of property), nationalisation, political violence (such as acts of civil unrest or insurrection), the inability to convert local currency and repatriate it, sovereign debt, and even acts of terrorism and war in some circumstances. The world today can be unstable and erratic, which is why at Coface we can offer political risk cover to businesses and financial institutions that are exposed to these kinds of commercial and political risks.
Political risk insurance coverage offers financial protection to investors, financial institutions, and businesses that face losing money due to political events. Also, it protects against the possibility that a government, of the country you conduct business in, will take some action that causes the insured to experience a significant financial loss. Having political risk cover can bring comfort to companies doing business in developing countries.
Understanding political risk insurance
Businesses are expanding into international emerging markets more and more which whilst presenting opportunities for business growth, also brings greater risks than developed markets. Overseas political turbulence can lead assets to declining severely in value, being destroyed, confiscated, or losing value altogether. Our Political risk cover can be set for an extended period of time which reduces the risk of doing business abroad. Without this cover businesses would be reluctant to operate in developing countries which could restrict growth and cause some economies to suffer.
A key feature of political risk insurance is the ability to keep an insurance policy for a number of years (up to 15 years). This is because some international business opportunities take years to carry out, and the political balance can shift dramatically in a short time. If a business knows that it will be insured against political risks for years regardless of the political situation, it can confidently move forward with activities that otherwise would have been too risky to pursue. Political risk insurance coverage can protect physical assets, stock investments, purchase contracts, and international loans.
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More info on Political Risk Cover
Political risk exposureAn annual political risk survey recently found that 55% of global organisations with revenues exceeding US $1 billion have experienced at least one political risk loss worth over $100 million. The most common political risk related loss was exchange transfer, which has affected almost 60% of organisations that experienced losses. This was followed by political violence with 48% and import/export embargoes with 40%. The key geographical threats highlighted by survey respondents were US sanctions policy, emerging market crises in locations like Turkey and Argentina, protectionism/trade wars, and populism/nationalism.
How is political risk insurance different to political violence insurance?There has often been uncertainty between what is considered “terrorism” and what is considered “political violence”. Depending on how governments and insurers distinguish between them should inform whether companies purchase political risk insurance, political violence insurance or a possible combination of the two.
How does political risk affect businesses?Political risk can affect the operations and profitability of a business as quickly and directly as any physical, financial or market risk factor. The impact of political risk is considered long-term because the risk increases over time, despite political risk being extremely difficult to quantify, investors and companies must examine and understand the potential for political risks by closely looking at the location’s history, political institutions, and political forces that are at work in the region.
Why choose Coface?Our Political Risk cover as part of our credit insurance offering can provide a wide range of trade credit and political risk capabilities. These are focused on export single risk, political risks, multinational credit insurance and non-standard insurance linked to underlying trade finance.