Page 24 - Insurance Times November 2019

Partly to address this problem, the Government has set up ability to underwrite political overseas investment insurance
the National Export Insurance Account to insure long and risk. Lloyd's has established their representative office in our
medium term exporters against commercial and political country and other re-insurers are actively studying the mar-
risk. The account is being operated by ECGC, and in addi- ket. These developments had reinforced (rather compelled)
tion to exports it will also specialize in large construction Indian Government to raise the foreign equity cap in insur-
and similar projects, particularly in countries of political ance companies from 26% to 49%. Since most of India's in-
interest to India. vestors are not yet availing of political risk insurance, this
market is still miniscule by global standards.
Although India's hitherto government-controlled insurance
market was opened to Indian and international companies Recently the private insurance companies have also made
during 1999-2000, no private political risk insurance player their foray into this line of insurance. While India's current
has that way emerged out. As a result, ECGC has a com- wave of investment has focused on industrialized countries,
pletely open field - and has not yet felt the need to rethink the next wave is concentrating on South East Asia, the
or re-price its existing political risk insurance offering. Cur- Middle East, china and Central Asia. Indian companies are
rently, ECGC's only competition is corporate 'self-insurance'. now also beginning to look seriously at Africa and Latin
However, ECGC may have to expand the scope of risks it America. Not only are the banks financing these invest-
covers to keep with international PRI industry changes. ments likely to require political risk insurance, companies
themselves might feel secured investing in it. A combina-
How is India's PRI Market Likely to De- tion of demand and supply-side factors will drive the de-
velop? velopment of PRI in India. Also, the entry of global re-in-
surance firms in India will dramatically boost the Indian
Even as ECGC girds itself to cater to India's new breed of insurance industry's ability to underwrite political overseas
outward investors, other PRI players will begin to emerge in investment insurance risk.
the Indian market over the next few years. A combination
of demand and supply-side factors will drive this develop- Conclusion:
ment, as explained below. Risk now on India's corporate
governance agenda - tightening Indian corporate governance The author has expressed here the technicalities of PRI and
laws have placed the systematic measurement, minimization, how it is being used as a tool to mitigate political risks which
and reporting of risk firmly on India's agenda. are basically dynamic in nature. Political Risk Insurance (PRI)
has become an essential but indispensable proposition to
deal with the definite & likely losses in the overseas mar-
In 2006, the Securities and Exchange Board of India (SEBI) -
India's corporate regulator - ruled that all publicly listed Indian ket, in this era of globalization. In simple terms, PRI com-
companies are to establish in-house risk assessment teams and pensates companies for lost assets when operating outside
process. These must be regularly reviewed by the respective their own countries - providing protection against risks that
Company Board Meetings. More stringent risk evaluation will are absolutely beyond their control.
combine with corporate globalization plans to place political
risk and risk mitigation instruments, including a stronger de- PRI in India is now being considered as a tool to protect
mand for political risk insurance, at the forefront. assets which when required to be surrendered to the local
people may be by the order of the local government or due
Investors' growing developing country focus - while India's to some other contingent situation prevailing in that coun-
current wave of investment has focused on industrialized try of operation. The significant role of PRI in securing fi-
countries, the next wave - which has already begun - is nancial support for large project (like mining, IT initiatives,
concentrating on South East Asia, the Middle East, China installation of on-shore or off-shore platforms/stations etc.)
and Central Asia. Indian companies are now also beginning abroad despite their serious social and environmental con-
to look seriously at Africa and Latin America. Not only are sequences for the communities have now been emerged
the banks financing these investments likely to require due to political instability world over.
political risk insurance, companies themselves might feel
more secure investing in it after availing the PRI Cover. Reference / Source:
This article is prepared through collection & collating infor-
Most importantly, the entry of global re-insurance firms into mation, noted from different contemporary articles & on-
India will dramatically boost the Indian insurance industry's line materials.

24 The Insurance Times, November 2019