Geopolitical Risk – what products & coverages?

The insurance market continues to proactively respond to the demands and needs of customers

Geopolitical Risk – what products & coverages?
While it is critical for organizations to be aware of the Geopolitical risks they are facing, the good news is that there are insurance products that may cover them, thus allowing companies to continue developing their activities even in what may be considered risky areas.

Rob Hough of the Financial & Political Risks Department of CGNMB, a CGSC Company, showed Fullcover some those tailored products: "The Lloyd’s and London markets offer various products that banks and corporates can use to protect their assets and investments against politically related events. We have summarised the main risk transfer products available and how they can respond below. 

Coverage can be specifically tailored to the insured’s needs and it is important to note that levels of indemnity, deductibles/excess, waiting periods and the breadth of coverage will differ on a case by case basis, reflecting a combination of factors such as the location of the risk and any capacity restraints in the market.”

Confiscation, Nationalisation, Expropriation, Deprivation (cend)

CEND policies indemnify companies operating in foreign jurisdictions, (that is in countries outside their own domicile) against the loss of assets, equity or income arising from selective and discriminatory actions by the local authorities.

Events that may be covered also include the cancellation or non-renewal of an operating or import/export licence or the inability to convert or transfer funds due to restrictions imposed on the insured. Coverage is also available against loss arising from political violence or war on land (see below).

Who purchases this coverage? Corporates with insurable interests in a foreign country, lenders with a contractual insurable interest through their loans and/or investments and foreign equity investors who have an equitable interest in a foreign company/ enterprise.

Contract Frustration

Contract Frustration is a product that covers corporates and lenders against non-payment or non-performance of contractual obligations, by a majority owned state entity or public company. 
Government contracts are significant business opportunities. However, there is a risk that they may be unilaterally cancelled or amended by that government or its agencies. The perceived level of risk will depend on the country in question, its performance history and insurers’ appetite.

Terms and prices will reflect this perception. The level of loss which can be compensated is usually up to ninety per cent of the total contract value. Who purchases this coverage? Corporates selling or buying from state entities or public companies and banks/lenders financing the specified trade.

Trade Credit Insurance

Comprehensive Trade Credit Insurance is very similar to Contract Frustration but the key difference is that it protects contracts to finance, buy or supply products or services from or to a private company rather than a public or state entity. A claim under the policy can be triggered by default or non-payment by the private company.

Who purchases this coverage? Corporates selling or buying from private companies and banks/lenders financing the specified trade.

Political Violence

Political Violence is defined as the physical loss or damage to an asset due to pre-agreed, defined types of event, such as:

• Sabotage & Terrorism
• Strikes, Riots, Civil Commotion (SRCC)
• War and Civil War
• Mutiny, Coup D'etat, Rebellion, Insurrection Coverage can be purchased in any territory in which the applicant has an insurable interest, including their own country, provided that insurers have appetite and capacity. 

As well as coverage against physical damage, extensions are available for consequential business interruption and liability to third parties Location and type of activity enables or restricts the coverage available. 

The insurance market continues to proactively respond to the demands and needs of customers with the development of additional coverages such as cyber, denial of access and loss of attraction which can complement an existing property or political risks placement.

This is a brief overview of the solutions that the insurance market can provide to their clients to assist them to mitigate their exposure to financial and political risks. Such covers can make the difference between a company being able to go ahead with a venture or losing a potentially valuable business opportunity. 
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