Political risk – insurance and risk issues from COVID-19

Political risk insurance (“PRI”) is typically purchased by multinational corporations, importers and exporters, project lenders, financial institutions and capital markets, foreign investors, and contractors in industries like construction and engineering. Investors in financial services are the highest users of PRI.

Political risk insurance is designed to mitigate against the loss of commercial assets, income or property as a result of a political risk event. Such events include political violence, expropriation, currency inconvertibility, non-payment, and contract frustration. Political risks are often very difficult – sometimes impossible – to predict, and the loss of assets and income that follows can be catastrophic.

Previously, the most common political risk-related loss was exchange transfer, this was followed by political violence and import/export embargos. The key geopolitical threats are US sanctions policy, emerging market crises in areas like Turkey and Argentina, protectionism/trade wars, and populism/nationalism.

COVID-19 presents a range of issues to companies who have invested in overseas markets. Businesses trading with foreign nations or investing in those countries may be highly susceptible to these exposures.

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