Page 20 - Insurance Times November 2019

But as companies push their business into ever more re- resources. When they arrive, however, they often find that
mote localities, so they have sought protection against the policies of foreign environments add a risk and com-
more exotic risks. The dangers of politics now hang over plexity to their business performance. A question for com-
companies as diverse as fruit growers in Latin America, film panies operating internationally thus becomes how best to
producers in Fiji and bankers in Dubai, London or New York. manage the political risks. Not only do political changes
pose direct risks to firms / organizations, but politics is also
What is Political Risk Insurance? a component of other external risks. Moreover, political risk
is often perceived to be outside of management's control,
Political Risk Insurance (PRI) is a tool for the Multi National
making it difficult to define or predict.
companies/enterprises, equity investors, financers, contrac-
tors, importers & exporters to mitigate and manage risks
Given to the complexity of these issues, it is no wonder that
arising from adverse government actions, confiscation of
assets, breach of contract or war and civil strife. PRI helps, corporate risk officers, export managers and international
as a risk mitigation tool, to provide a more stable environ- bankers will be looking for this cover simply because the
ment for the various investments into developing countries, Political Risk Insurance (PRI) protects an insured in case a
and to unlock better access to finance. foreign country confiscates its goods or equipment or if it
interferes with the fulfilment of a contract to be complied
by the organization. Now-a-days the Political Risk Insurance
The multinational enterprises - either as direct investors or
exporters, use this PRI to enhance their confidence in the cover becomes the dire need to be covered by the MNCs
markets perceived to be riskier than home markets. PRI or the companies who are engaged abroad mainly because:
1. The politics of foreign environments adds risk and com-
allows investors to concentrate on the commercial aspects
plexity to business performance.
of investments, with the comfort that someone else - PRI
providers - will help them avoid potential losses, or reim- 2. PRI helps provide a more stable environment for invest-
burse them in case of a covered loss related to political ments into developing countries.
causes. 3. India's PRI Market is still miniscule by global standards.

4. But India's investment in developing countries like
Political risk insurance is a type of insurance that can be
taken out by the businesses, of any size, against political South East Asia, Africa etc., will drive defiinite growth
turmoil - the risk that war, invasion, act of foreign enemy, of PRI in future.
hostilities or war like operations (whether war be declared
The underwriting of political risk insurance is a dynamic &
or not), civil war, mutiny, civil commotion assuming the
growing business. As globalisation increases, there are more
proportions of or amounting to a popular rising, military
rising, rebellion, revolution, insurrection or military or corporations doing more business in various places around
usurped power or other political conditions that will result the world with each passing year. Some of the changes
in a loss. Political risk insurance is available covering sev- occurring in the business are high growth, new product
eral types of political risk, including: offerings, and a greater role for private capital. While po-
litical risk insurance policies are sometimes manuscripted
Y Political violence, such as revolution, insurrection, civil for specific situations, the major political risk insurers have
unrest, terrorism or war;
standard forms for the coverages that they issue.
Y Governmental expropriation or confiscation of assets;
Y Governmental frustration or repudiation of contracts; Political risk insurance is available for political violence such
as revolution, insurrection, civil unrest, terrorism or war;
Y Wrongful calling of letters of credit or similar on-de- governmental expropriation or confiscation of assets; gov-
mand guarantees; and
ernmental frustration or repudiation of contracts; wrong-
Y Inconvertibility of foreign currency or the inability to ful calling of demand guaranties; and inconvertibility of
repatriate funds. foreign currency or the inability to repatriate funds. Export
Credit Guaranty Corporation (ECGC) in India had virtual
As with any insurance, the precise scope of coverage is monopoly to issue political risk insurance cover for credit
governed by the terms of the insurance policy. Big and risks. Things have potentially changed after insurance sec-
multinational companies are drawn to expand into interna- tor liberalization.
tional markets, mainly in search of lower costs, consider-
ing the new opportunities and easier acess to potential Companies are drawn to expand into international markets

20 The Insurance Times, November 2019