Political Risk Insurance: Why Your International Business Must Have It.
A special interview with Global Security Consultant and Political Risk Expert, Paul Crespo
This is the first in a series of posts dealing with global security and political risk management. While companies doing business internationally generally protect themselves against numerous risks, political risk is often ignored or accepted as fate. While there are many ways to manage and mitigate political risk, this post we will focus on political risk insurance (PRI).
Why is political risk a hot topic for international business today?
Paul Crespo: Riots in Brazil, uprisings in Egypt, nationalizations in Argentina, bailouts in Cyprus and economic crises across the Eurozone countries, increasing official corruption in Russia, political uncertainty in China, systemic violence in Mexico, conflict in Syria, all remind us that the world can be a dangerous place to do business. With the tremendous increase in globalization, more and more small and mid-sized companies are expanding globally. Often into very risky countries.
What exactly is political risk, and how is it different from say war risk?
Paul Crespo: Political risk sometimes includes war risk but is otherwise defined as “interruption in business or other loss due to political conditions, political violence, civil unrest, governmental confiscation of assets, wrongful calling of letters of credit or other similar demands. These can occur with or without war. War risk refers to similar and additional damages arising during wartime and solely out of acts of war.”
Political risks are assessed based on economic factors, political stability, political interference, legal and regulatory issues, supply chain interruption, political violence, and the ease of doing business in a given country. But many other factors also play a role.
What countries today have the biggest political risk?
Paul Crespo: Most of the countries with highest risk are in the emerging or “frontier” markets, but as we have recently seen from some European countries, no country is totally immune. Countries in active conflict such as Afghanistan, Iraq, Sudan, Chad or Syria would be high on the list, while highly repressive or unstable countries such as North Korea, Somalia, Haiti, Iran and Venezuela would also be extremely risky.
According to Aon Risk Solutions, countries with downgraded risk ratings in 2013 were Algeria, Cameroon, Chad, Ethiopia, Madagascar, Mali, Namibia, Moldova, Turkmenistan, Uzbekistan, Panama and Paraguay.
But these lists leave out a lot of countries. Each country has