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What is Political Risk?

Interstate conflict, the failure of national governance and outbreaks of nationalism are all part of the geopolitical landscape.
 

Stability in a country sometimes breaks down after crumbling gradually in full view of the media, but the old order frequently collapses with little warning, leaving investors, lenders and contractors unprepared and out of pocket.
 

Too often, businesses find they are no longer able to operate in a market they once considered predictable. Their licences or contractual rights are being taken away from them, or their assets are damaged; they discover too late that their financial losses are not covered by standard property ‘all risks’ insurance; nor does their standalone political violence cover respond to all the circumstances that have overtaken them so quickly.
 

Yet it is possible to prepare for the potential impact of unforeseen political upheaval. Different political risks can be managed and transferred in a way that helps businesses feel confident about operating in diverse markets around the world.

Political Risk Examples

Expropriation & Discrimination

For political reasons, governments act suddenly to deprive companies of their shareholdings in subsidiaries, or they expropriate their assets. Even when a government doesn’t go so far as to explicitly seize an asset, its actions can restrict a company’s ability to exercise its rights in respect of that asset.

Sovereign states do have the right to expropriate property where fair compensation is paid out. But governments don’t always accept that they should pay compensation, often leaving businesses and investors powerless.

Political risk insurance is designed to protect businesses operating abroad against the risk of a range of arbitrary government actions, such as:

  • Confiscation, expropriation and nationalisation
  • Selective discrimination
     
  • Forced divestiture
  • Licence cancellation and breach of contract
     

Political Violence & Forced Abandonment

Businesses choose to operate in emerging markets, many of them with nascent democracies, for different reasons. They want to expand into high growth economies, to establish a manufacturing base or to access material resources, for example.

Such countries can be politically risky in their own right, or they might be vulnerable to regional instability. When political violence erupts, it can manifest itself in myriad ways that standalone terrorism insurance does not always respond to, for example when companies are forced to leave a country due to physical danger.

That’s why political risk insurance from Chubb provides broad political violence cover for a world where unrest and conflict doesn’t fit neatly into boxes:

  • Damage to, or destruction of, physical assets as a result of physical violence
  • Abandonment of the assets or the foreign enterprise, or the abandonment of the operations of the foreign enterprise, as a result of political violence
     

Inability To Import/Export

Economic competition between nation states or trading blocs is an inevitable by-product of globalisation. But when relations turn sour it can mean damaging export and import restrictions being imposed on businesses.

Sanctions or other restrictions that result from political disagreements are not uncommon. They can seriously disrupt supplies of important materials or put stocks and products out of reach.

Political risk insurance provides effective protection to importers and exporters in different exposure scenarios, including:

  • Cessation of operations where exports are crucial to the business
     
  • Loss of products that are only of realisable value if exported
     

Inability To Convert Or To Transfer Currency

Investing overseas is risky for all sorts of reasons to do with assets and operations. But sometimes cash flow is directly at risk from government action. Internal economic or political problems can cause struggling governments to react by imposing exchange controls.

Not being able to remit funds from an overseas operation back to the home country renders that business unit redundant. If controls persist over a longer period, those funds lose value, potentially harming the insured’s overall profitability.

Political risk insurance responds when restrictions on foreign exchange prevent remittances relating to:

  • Dividends
  • Shareholder loan payments
  • Intercompany payables
  • Proceeds of sale

Why Choose Chubb?

Enduring Expertise

Chubb is home to some of the most experienced political risk insurance professionals in the world. Our people have a deep understanding of how political risks relate to different business sectors and companies.

Chubb combines financial strength with prompt claims handling and we’re structured to deliver effective political risk insurance around the globe.

Our regional capabilities backed by a global reach and underpinned by in-house country risk analysts have helped us to forge longterm relationships with our clients.

Global Expertise

Personal service from dedicated, empowered and experienced staff. Chubb’s underwriting team works together as a single unit with strategically located hubs:

  • USA (New York)
  • Europe (London & Hamburg)
  • Latin America (São Paulo & Buenos Aires)
  • Asia (Tokyo & Singapore)

Contact Us

Find the local underwriter near you.

In addition, through Chubb’s extensive network of regional offices, we are in many of the world’s major cities. Feel free to contact any of the below offices for a discussion.

New York
1133 Avenue of the Americas
30th Floor
New York, NY 10036
Tel: +1 212 642 7889

London
Chubb Building
100 Leadenhall Street
London EC3A 3BP
Tel: +44 (0) 20 7173 7925

Hamburg
Stadthausbrücke 1-3
20355 Hamburg, Germany
Tel: +49 (0) 40 36980-5146

Singapore
138 Market Street
#12-01 CapitaGreen
Singapore 048946
Tel: +65 6398 8673

Brazil
Av. das Nações Unidas
8501 26º
Ed. Eldorado Business Tower
05425-070 São Paulo 
Tel: +55 11 4504 4334

Tokyo
Garden City Shinagawa
Gotenyama, 6-7-29 Kita-Shinagawa
Shinagawa-ku
Tokyo 141-8679 Japan
Tel: + 81 50 3164 8230

Trading Goods & Services With Customers Comes With Risks

Learn how you can help mitigate these risks with a trade credit policy issued by Chubb.