Business, General

Why Is An Underwriting For Political Risks Important In Your Credit Insurance Cover?

admin / October 19, 2021

When your business or institution faces a huge risk of loss of money because of changes in the financial decisions taken by the government of your country or of the country you are trading with, your risk profile for getting affected by political events is very high and you need to keep in place some form of protection to mitigate the effects sudden political changes.

A risk coinsurance cover that provides financial protection in events of political unrest, acts of wars, riots, and changes in foreign trade policies, expropriation, and much more is a must if your business, financial institution, or investments deal with international market trades specifically.

At Niche Trade Credit located in Gordon NSW, the political risk insurance cover provides recovery of financial losses that are incurred as a result of political events that took place in the foreign government of the country you were trading with. This insurance cover is bundled with their trade credit insurance policy for providing maximum benefits to your organization to prevent your company from crippling even under situations of extreme financial loss due to unpaid invoices as a result of political unrest.

Political risks – Why insurance is required?

Most of the developed markets are now seeing stability and sufficiency. This decreases the opportunities they can provide for business growth. This is why many multinational companies and even certain start-ups are looking towards emerging markets for exploring their growth opportunities.

While such emerging markets provide expansion opportunities, they are also at a higher risk of political instability that can cause:

  • A sudden and sharp decline in the value of your assets.
  • In some cases, your assets can also be confiscated or destroyed.
  • Your business operations can fail to work smoothly, also causing loss of time value of your money.

Without any security of being able to recover that loss, no company would want to invest in trading in foreign lands prone to political risks. This stops the growth of an organization but also the growth of these emergent markets where the potential for development is huge.

This is why credit insurance has a protocol for underwriting the political risks as a major factor when your organization is involved in such trades.

Who needs insurance cover for political risks?

Although a minor amount of risk is involved in every trade even if it is domestic, some organizations are at a higher risk for politically influenced financial loss. Those who typically buy a political risk cover are:

  • Exporters and importers
  • Foreign investors
  • Multinational corporations
  • Financial service investors
  • Project lenders
  • Industrial contractors involved in engineering or construction
  • Capital markets, banks, and financial institutions

The events covered under insurance covers that underwrite political risks in its policies are:

  • Political violence including riots, revolutions, and civil war that can result in the abrupt cancellation of projects that involves a foreign land.
  • Risk of confiscation of property by the foreign government.
  • Contract frustration by the government.
  • The costs are associated with additional demands of guarantee or wrongful call of letters of credit.
  • Interruption in the smooth working of business activities that operates in a foreign land.
  • Currency issues that can result in an inability of payments transfers are also covered under these political risks policy plans.

As a result of purchasing these insurance covers, your company can fearlessly target emergent markets and explore the huge potential that these new lands provide for the growth of your business.