Political Risk Insurance
Political risk insurance is specifically designed to provide businesses with the broadest cover for many of the losses that can result from government action, political unrest and economic turmoil.
Expropriation and 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 and 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:
- Shareholder loan payments;
- Intercompany payables;
- Proceeds of sale.
Enduring expertise in political risk
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.
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