Political risk insurance

From ArticleWorld

Political risk insurance is the cover with which most organizations who work in politically unstable countries provide for themselves. Top companies that have their base in countries whose governments are not stable or companies which have an export/import business with such countries can protect themselves against a range of political risks that may prevent or delay payment. Such situations might arise when payment is not made because of a direct result of a war in the buyer’s country, the government of the buyer country being forced to cancel contracts, or even when a buyer government puts into operation regulations which either check the export or import of the goods or thwart or put a stop to the transfer of hard currency from the buyer’s country.

Unstable states

Most of the countries in this list are from the developing third world. Some regions that are extra sensitive are:

1. countries in Latin America;
2. countries in Asia;
3. countries in Africa;
4. countries in Middle East, and
5. countries in Eastern Europe.

Reasons for risk

The few main reasons that are responsible for the instability of business relations between the investing and the host countries are:

1. political unrest, terrorist activities, civil war like conditions or an insurgency in the buyer country;
2. impoundment of the assets of the investing country by the buyer country’s administration;
3. difficulty regarding the fluidity of the buyer country’s currency; and,
4. denial by the buyer country to honor the contract between the two countries.