PRI Essentials
What is political risk insurance?
Multinational corporations and banks face a number of significant risks when conducting business overseas. Some of these risks can be removed or at least reduced by conducting basic due diligence on the parties involved and on the economic viability of the proposed business. Other risks are harder for investors and lenders to predict – these include some commercial risks and, most notably, non-commercial - or political - risks.
Political risk insurance (PRI) is a vital tool for businesses to mitigate and manage risks arising from the actions or inactions of governments. As a risk mitigation tool, PRI helps provide a more stable environment for investments into developing countries and emerging economies.
Using PRI
Whether as an exporter or planning to establish a direct investment, multinational corporations use PRI to enhance their confidence in markets perceived to be riskier. With the protection of PRI, multinationals have a clearer understanding of country conditions through the insurance provider’s due diligence, as well as the knowledge that potential losses due to political risks are less likely to arise. However if covered losses do arise, the multinationals will typically be compensated to the extent of their PRI policy. This mitigation is often also crucial in obtaining or improving financing for foreign investments.
- Political Risk: Run for Cover? (CFO Magazine)
- Protecting Corporate Balance Sheets against Political Uncertainty (Chubb)
- Take Cover to Reduce Risk (FDI Magazine)
Who provides PRI?
A large insurance industry has emerged to help multinationals mitigate political risk through the purchase of PRI. Providers include private sector players, like Sovereign, Zurich, Chubb, Lloyd’s of London, Aon and AIG, as well as government-backed agencies such as OPIC of the US, Export Development Canada and Nippon Export and Investment Insurance in Japan. Finally, several multilateral agencies also provide PRI – most notably the World Bank Group’s MIGA. Below are links to a directory of PRI provider and consultants.
