With the world on a heightened state of alert in recent months, it's hardly surprising that businesses are taking renewed interest in political risk insurance. Written by a handful of major international insurance firms, the coverage includes trade credit insurance and, at the extreme, the acts of governments such as nationalization, confiscation or default.
More likely, however, is coverage triggered in the event of strikes, civil unrest, unforeseen taxation or defaults on contracts. Patricia Skold, senior vice president and worldwide underwriting manager for political risk at Chubb & Son, says sizable claims have been paid in Russia and Asia in recent years; in Indonesia, for instance, investors in large projects submitted claims when political events prevented their completion.
In all, she estimates, more than $1 billion has probably been paid in political risk claims in the past 25 years since the coverage developed, much of that payout as a result of the Latin American financial crises of the early 1980s. The absolute risk, however, may be lessening. "The catastrophic nature of these losses has declined in the last 25 years -- there's often a partial recovery," Skold says.
True political risk coverage, she says, is a product perhaps best suited for banks, telecommunications firms, energy companies and other multinationals with at least $1 billion in annual revenues. It is designed to insure against government acts that would prevent payment of a loan or...