What is Political Risk Insurance?

Political risk insurance provides much needed protection for companies operating in parts of the world that may be subject to unpredictable political environments. In the event of a foreign government’s seizure or nationalization of a company’s foreign assets, or economic loss resulting from certain tariffs or economic embargos, political risk insurance can indemnify the policyholder for the value of the assets or economic loss resulting from the political act. It can be useful for businesses that have significant exposures that would seriously jeopardize the parent company’s balance sheet if an event occurred.

Eurasia Group’s Assessment

On January 6, 2020 (prior to the Coronavirus pandemic), Eurasia Group published its annual global risk report which identified the most important geopolitical trends and stress points for global investors and market participants in the coming year. Eurasia Group president Ian Bremmer noted, “In recent decades, globalization has created opportunities, reduced poverty and supported peace for billions of people. But now China and the United States are decoupling on technology, developed world countries have become toxically polarized, and climate change matters as never before. Taken together, these trend lines are likely to produce a global crisis.”

Eurasia Group’s Top 10 Political risks For 2020:

  1. Who Governs the United States?
    Regardless of who wins the November presidential election, the opposition will likely see the result as illegitimate, leading to months of lawsuits and a political vacuum. Unlike the contested Bush-Gore 2000 election, the loser is also unlikely to accept a court-decided outcome as legitimate, further increasing political uncertainty.
  2. The Great Decoupling
    As the United States and China continue to split from one another on technology models, the rift will move beyond strategic tech sectors like semiconductors and cloud computing into broader economic activity, creating a deepening, and potentially permanent, business, economic and cultural divide.
  3. United States/China Tensions
    US/China tensions will provoke a more explicit clash over national security, influence and values as the two sides continue to use economic tools like sanctions, export controls and boycotts for increasingly political ends, sparking new confrontations.
  4. Multinational Corporations Not Coming to the Rescue
    Rather than fill the gaps on critical issues like climate change, poverty reduction and trade liberalization left by underperforming national governments, multinational corporations will face new regulatory pressures and oversight from political officials, which will force them to focus more on their bottom lines.
  5. India Gets Modi-fied
    India Prime Minister Narendra Modi’s controversial citizenship and immigration policies will continue to provoke protests and demonstrations, encouraging opposition leaders to challenge the central government, making it more difficult for Modi to implement much needed economic reforms.
  6. Geopolitical Europe
    European leaders will increasingly push back against competing economic and political models by more aggressively defending their interests with regulatory, trade and security policies — likely creating friction with both the United States and China.
  7. Politics vs. Economics of Climate Change
    Governments, investors, corporations and society at large will continue to clash over how to address climate change, potentially leading to suboptimal corporate decision-making, operational business disruptions and political instability, all while natural disaster frequency and severity increase.
  8. Shia Crescendo
    US policy toward the major Shia-led nations in the Middle East – Iran, Iraq and Syria – may lead to significant risks for regional stability, including the possibility of a lethal conflict with Iran, upward pressure on oil prices, an Iraq caught between Iran’s orbit and state failure, and a rogue Syria fused to Russia and Iran.
  9. Discontent in Latin America
    In 2020, public anger over sluggish growth, corruption and low-quality public services in many Latin American countries will keep the risk of political instability high, causing more protests, deteriorating fiscal balances, the rise of anti-establishment politicians, and less predictable election outcomes.
  10. Turkey
    As President Recep Tayyip Erdogan enters a period of political decline with defections from the ruling Justice and Development Party and popular former allies establishing new parties, relations with the United States will hit new lows as likely U.S. sanctions take effect in the first half of this year, undermining the country’s reputation and investment climate.

Click here to read the most recent report, updated on March 19, 2020 to incorporate the impact of the coronavirus pandemic on these top trends.

Please reach out to your Sequoia Risk Advisor, or connect with them directly in HRX, to review these emerging risks and the impact they could have on your global risk and business operations.

Note: Eurasia Group is a political risk consultancy founded in 1998 by Ian Bremmer, with offices in New York City, Washington, D.C., London, Tokyo, São Paulo, San Francisco, and Singapore. In 2010, Patrick Tucker of the World Future Society described the group as “the world’s largest political-risk consultancy”.

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Mary Beth Downs – Mary Beth Downs is a Senior Risk Advisor for Sequoia, providing property and casualty consulting services to our clients helping them protect assets, scale in the marketplace, and manage risk. As a Bay Area resident for the past 27 years, she enjoys volunteering in her local community and traveling within the state as much as possible.