Given recent events, there is an increased interest in political
risk insurance in Russia and Ukraine. However, it also appears that
insurers have stopped underwriting political risk insurance, at
least for exposures in Ukraine for the time being, and many
insurers are declining to quote on Russian exposures, or are
subjecting new inquiries to greater, and slower, underwriting
scrutiny. The situation is exacerbated by threats and
implementation of economic sanctions, which could lead to
responsive economic measures, changes in the laws, or even steps by
the governments resulting in payment delays or seizure or reprisals
against foreign assets in those countries.
Political risk insurance takes many forms and can protect direct
investors or those who do business with foreign governments or
businesses. Common forms of political risk insurance include:
Contract Frustration Insurance: Contract Frustration Insurance
protects an insured's trade or sales contract with a foreign
company from the action (or inaction) of the foreign government.
The risks insured may include the risks of confiscation,
nationalization, expropriation, or changes in the foreign
country's law. The policies typically require that the
government's action or inaction result in the termination of
the contract, prevent the performance of the contract, or result in
the foreign company having a valid discharge of its duties under
the contract. Contract Frustration insurance also may protect
against losses from an embargo or license cancellation, from war,
political violence, insurrection, actions by armed forces, strikes,
riots, and other specified events that prevent the performance of
Currency Inconvertibility Insurance: Currency Inconvertibility
Insurance protects an insured doing business in a foreign country
from losses if it cannot convert the foreign currency into U.S.
dollars. It typically applies when a foreign government enacts new
currency restrictions or prevents the conversion or transfer of the
insured's funds generated in connection with its investment in
the foreign country from local currency into U.S. dollars.
Expropriation Insurance: Expropriation Insurance protects an
insured's investment or assets in a foreign country from a
foreign government's unlawful confiscation, nationalization, or
Political Violence Insurance: Political Violence Insurance
protects an insured against property and income losses incurred as
a result of war, civil unrest, revolution, riots, and politically
Terrorism Insurance: Terrorism Insurance protects an insured
against losses from violent acts, including acts involving
chemical, biological, or other weapons of mass destruction, by
individuals or groups. Terrorism coverage typically is
significantly narrower than political violence coverage.
Coverage also can be tailored to meet specific needs through the
private insurance marketplace (e.g., underwriters at Lloyd's of
London or AIG).
The situation we see with Russia and Ukraine is not unusual in
terms of triggering interest in political risk insurance—it
highlights why businesses should consider it. However, as the
current situation demonstrates, when there is a "hot
spot" of activity in a particular region, it makes procurement
of political insurance in the aftermath difficult and, if
available, expensive. Therefore, political risk insurance should be
considered before there is an issue. Once the issue arises, it may
be too late. And, while the likelihood of events happening that
might trigger political risk insurance may not be predicted with
certainty, several major insurance brokers post political risk
"maps" or assessments that indicate possible risk levels.
While not perfect, these maps and assessments could provide
guidance to those considering a possible need for political risk
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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