In the face of increasing globalization, heightened awareness of terrorism, and a world full of unstable political environments, managing political risk is becoming an increasing important part of a business’s risk management strategy. Doing international business presents a company with an all new set of loss exposures. These risks include government instability, change in monetary and fiscal policy, terrorism, disputes over trade, financial market volatility and unpredictability in local tax regulation. Political Risk management, including insurance options, is used to reduce the uncertainty and to cushion the financial impacts of events in foreign countries that could harm the organization.
Examples of the chief perils associated with political risk are:
- Nationalization
- Privatization
- Expropriation
- Civil unrest
- Revolution
- Foreign exchange restrictions
- Labor regulations
- Kidnapping
- Terrorism
- Seizure
- Forfeiture