Political Risk Insurance – As Violence & Overseas Capital Controls Increase, Multinationals Seek PRI to Protect Their Supply Chain

November 8, 2017

Increases in political violence and capital controls worldwide drives up demand for political risk insurance.

Short-term vs. Long-term Exposures

Political Risk InsuranceWhether moving capital for dividends, setting up fabs, or leasing capital equipment, many multinationals and investors are in for the ‘long haul.’ Technology companies have ‘fabs’ & partnerships, commodities firms purchase licenses & set up local operations, software companies offer multi year licenses, contractors bid on infrastructure projects, and banks & investors deposit capital. After 20 years of retreat, the 21st century has seen dramatic increase in civil disruptions & terrorist events, nationalization of local investments, the return of authoritarian regimes, and the creep of sovereign capital controls. News leads daily with saber rattling rhetoric not seen since the height of the Cold War. A perceived contradiction between the long-term investments of global corporations and the short-term calculus of political elites has lead to an increase in political and financial instability.

Old Hands

Veterans of the waves of 70s nationalism and subsequent sovereign debt crisis of 80s/90s find their phones ringing. Volcker — not Greenspan — is the hot guest speaker. In long term corporate financial planning, the pugilist Mike Tyson is paraphrased more often than the economist Friedman.

Well worn company hands are quietly re-connecting with trusted old friends. Political Risk Insurance is again an essential tool for CFOs, Treasurers, and investors.

“Not Walt Wriston’s political risk insurance …”

From banks to global manufacturers, political risk insurance has long protected companies’ executives & boards from financial loss due to payment defaults by government customers, their spurious actions, or even outright nationalization of investments or seizure of physical assets. Its less well known features are now those more often called upon. It pays companies on their financial losses due to strikes, riots, and terrorist events. Originally only offered by government agencies such as OPIC, EXIMBANK, EDC, World Bank & others, it is now more often purchased with materially fewer restrictions from specialized investment grade rated firms.

While continuing to provide traditional solutions, the political risk insurance market has evolved and developed new and innovative products for companies that reflect the demands of the [New Millenium, 21st Century]

Notably, political risk insurers upgraded and replaced contract payout provisions with arbitration clauses that even the most ardent champions of the [CFP, Consumer Financial Protection Board] could appreciate. Companies purchasing insurance have improved certainty on payouts and their timing around which they can plan.

Significantly, insurers have expanded their offering to include protections for risks all along the supply chain. Those born by the insured, and those born by related partners in country.

In addition, insurers have developed and implemented market leading solutions directly supporting their Clients’ blockchain programs.

Getting the Job Done with Political Risk Insurance

Even in times of rising global uncertainty, business and corporate leaders still want one thing. Take the steps necessary to make sure the plan succeeds, and quickly bring them about. When discussions turn forward to managing the [international, global] risks outside a company’s control, the pressure on scope, time, and costs is acute. That’s where a smart insurance agency with expertise in political risk & trade credit insurance comes in. We offer companies help in qualifying the various major insurance companies products to create a solution tailored to a company’s contracts & business.

From emerging markets to those more developed, Political Risk Insurance is the ‘go to’ tool for managing the contradiction between making a long-term business investment in a country, and the shorter term political forces within those countries — whether in or out of influence. The smart business and corporate leaders can look to insurance providers to ensure the success of their plans through savvy political risk insurance.

Reach out to us today to have a conversation about your specific needs; obviously, the need for political risk insurance is dependent both on the needs and exposure of your business and on the situation of the country or countries in which you are planning to do business!

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