Political risk insurance is a type of
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
that can be taken out by businesses, of any size, against
political risk
Political risk is a type of risk faced by investors, corporations, and governments that political decisions, events, or conditions will significantly affect the profitability of a business actor or the expected value of a given economic action. ...
—the risk that revolution or other political conditions will result in a loss.
Political risk insurance is available for several different types of political risk, including:
* Political violence, such as
revolution
In political science, a revolution (Latin: ''revolutio'', "a turn around") is a fundamental and relatively sudden change in political power and political organization which occurs when the population revolts against the government, typically due ...
, insurrection, civil unrest,
terrorism
Terrorism, in its broadest sense, is the use of criminal violence to provoke a state of terror or fear, mostly with the intention to achieve political or religious aims. The term is used in this regard primarily to refer to intentional violen ...
or
war
War is an intense armed conflict between states, governments, societies, or paramilitary groups such as mercenaries, insurgents, and militias. It is generally characterized by extreme violence, destruction, and mortality, using regular o ...
;
* Governmental expropriation or confiscation of assets;
* Governmental frustration or repudiation of
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
s;
* Wrongful calling of
letters of credit
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exp ...
or similar on-demand guarantees;
* Business Interruption; and
* Inconvertibility of foreign
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general ...
or the inability to repatriate funds.
As with any insurance, the precise scope of coverage is governed by the terms of the insurance policy.
The underwriting of political risk insurance is a dynamic, growing business. As globalisation increases, there are more corporations doing more business in more places around the world with each passing year. Some of the changes occurring in the business are high growth, new product offerings, and a greater role for private capital.
While political risk insurance policies are sometimes
manuscript
A manuscript (abbreviated MS for singular and MSS for plural) was, traditionally, any document written by hand – or, once practical typewriters became available, typewritten – as opposed to mechanically printed or reproduced in ...
ed for specific situations, the major political risk insurers have standard forms for the coverages that they issue. For "complex" or larger investments manuscripted policies are the norm and there may be several insurers providing cover in the form of a syndication, through co-insurance, or perhaps with the participation of a reinsurer on a facultative basis.
Providers of political risk insurance include public agencies and private insurance companies.
References
External links
The Islamic Corporation for the Insurance of Investment and Export CreditMultilateral Investment Guarantee AgencyInvestment Guarantees of the Federal Republic of Germany
*{{cite news , url=http://www.irmi.com/expert/Articles/2002/Wagner07.aspx , title=Political Risk Insurance in Asia: Who Purchases It, Where, and Why , date=July 2002 , accessdate=2006-07-17 , publisher=International Risk Management Institute , author=Daniel Wagner
Overseas Private Investment Corporation
Types of insurance