How can it help me?
Political risk insurance protects your overseas investments and assets, giving you the confidence to undertake investment offshore to expand your export business or to participate in overseas projects.
What is it?
Political risk insurance—also called overseas investment insurance—can help protect you against losses on your overseas investment or assets where those losses are due to certain political events.
How does it work?
When you expand your export business overseas—for example, with an offshore factory, warehouse or sales office—you accept that the investment may involve commercial risk, such as the insolvency of your overseas partner. However, if your investments or assets are located in a country with an uncertain political environment, they could also be exposed to political risks which have the potential to cause you significant financial loss, such as:
- expropriation, for example the overseas host government nationalising your investment or plant and equipment
- war damage
- political violence
- inability to convert currency or transfer it out of the host country.
If you have an overseas investment, political risk insurance can cover you against the loss of your investment due to certain political events such as these. If the plant and equipment you use to perform a contract is located overseas, political risk insurance can cover you against loss of use or possession, damage or destruction of the plant and equipment due to defined political events.
The diagram below shows how political risk insurance works.
Notes to diagram
- You invest in an overseas company.
- Your insurer provides political risk insurance to help protect you from losses on your overseas investment or assets due to certain political events.
What are the pros and cons?
| Pros |
Cons |
| Can protect your overseas investment or plant and equipment located overseas from losses due to defined political events |
For high-risk countries, this insurance cover may be unavailable or the premium may be substantial |
| Can give you more confidence to undertake offshore expansion or major overseas projects |
|
What costs are involved?
The cost of a premium for political risk insurance depends on factors including:
- the country for which you are seeking cover
- the region where the investment or project is located
- the period of insurance
- the political risks being insured
- the type of investment or project.
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