There are various risks that businesses face in the emerging markets that could potentially wipe out their investments in those countries. However, you can protect your business with political risk insurance which has been designed to help you manage various country-specific risks. Businesses can choose insurance coverage that has been designed to help them address the various forms of risks which are associated with political events in certain countries. There are certain policy coverage options which are multi-country and which can offer coverage for up to hundreds of millions of dollars worth of transactions in high risk environments.
You can protect your business with political risk insurance coverage for a variety of business risks such as political violence, expropriation of assets as well as the risks associated with the inconvertibility of currency on these environments.
The purpose of political risk insurance
This kind of risk insurance is mainly designed to help businesses in mitigating the various forms of risks that they typically face in markets with lots of political uncertainties. These are generally by both investors as well as lenders when they are investing or lending in these markets. You can protect your business with political risk insurance if you are worried about the long-term stability in a particular country.
By taking the political risk insurance, you will have the peace of mind that no matter the sociopolitical circumstances, you will be able to get out of the market without significant losses on your debts or investments.
A Short History
Political risk insurance has its roots in the Post-WWII period with the inception of the Marshall Plan-a post war effort by the US Government for US private equity firms to invest in the rebuilding of Europe. The US government did this by offering risk guarantees for these investment companies. Today, it is a means for many multinational and transnational businesses to insure their assets against various forms of political risks, especially those in the emerging markets where the country has a history of political instability or social upheavals that could wipe out investments or debts.
Today, political risk insurance covers areas such as machinery, fixed investments, shareholding, stock, intercompany loans as well as retained profits amongst many others. Financial institutions or lenders can also purchase the risk insurance in order to protect themselves against a potential default by a borrower that is occasioned by political events such as the nationalization of assets by an incoming government. In such cases, the borrower will have defaulted because they can no longer access the revenues that they need in order to repay their loans.
Some of the operating areas where the political risk is most required are in project financing, export financing, trade financing, asset-based financing and leasing amongst others. You will need to protect your business with political risk insurance in case the balance sheet of the financial situation will be affected in any way by political risk.
However, it is important to know not all risks are covered by PRI. Case in point includes risks such as fluctuations in commodity prices, fraud, failure to comply with the laws of certain countries and fluctuations in currency prices amongst others. For more information, check out http://www.nichetc.com.au/services/credit-insurance-we-manage-your-credit-risk-professionally/political-risk-insurance/.