Structured credit and political risk insurance market is more important than ever, given the uncertain and vulnerable risk environment internationally. Ongoing conflicts in various regions are making it more challenging for businesses to assess and manage risks. This makes political risk insurance, which supports trade and investment, a vital tool for businesses operating globally.
The global macroeconomic challenges that affect political risks are discussed in the recent Gallagher Specialty Q1 2025 report. The report also details factors that may increase the risks faced by businesses operating in or investing in emerging markets.
Emerging market opportunities require considered risk protection
"Political risk is one of the major headaches faced by multinational businesses involved in cross-border investments," says Gallagher National Head of Credit, Surety & Political Risks Racheal Tumelty, citing Africa as a region prone to rapid fluctuation.
The potential risks involved range from escalating armed conflict, political instability fiscal concerns, such as debt sustainability; and economic tensions, including inflation, unemployment and limited foreign investment.
Core protections offered by structured credit and political risk insurance
Structured credit and political insurance enable businesses to manage risks in conditions where uncertainty and instability may challenge overseas operations.
- Non-payment coverage protects policyholders from losses caused by a partner or customer's failure or refusal to honour a contractual debt obligation.
- Non-delivery/pre-finance coverage protects policyholders from losses incurred when a supplier fails to fulfill their obligations under a pre-financed supply contract, including the return of pre-financed funds.
- Pre-shipment insurance protects the policyholder when a buyer terminates an export contract before an amount owing is established or when specified political events prevent contract fulfillment. It can be combined with post-shipment insurance to form comprehensive pre and post-shipment cover.
- Post-shipment insurance covers situations where a buyer, after an amount becomes due under an export contract, fails to pay or cannot pay due to occurrences like currency inconvertibility or exchange transfer issues. It can also be combined with pre-shipment insurance to form comprehensive pre and post shipment cover.
- Political risk insurance (PRI) foreign government intervention can affect investors' liquidity, assets, ability to source materials, secure and manage contracts with manufacturers and set terms of trade.
Other risks may include forced abandonment and currency transfer blockage. Legal recourse or compensation may not be accessible.
Particularly in respect of investments in foreign projects or businesses, PRI can provide coverage against:
- Expropriatory acts: when the host country's government expropriates, confiscates, nationalises and/or takes other actions (including licence cancellation) which deprive the business of all or part of its investment in that location
- Selective discrimination: when the host country's government imposes a law or import/export restriction which discriminates against the Australian owned business but not similar locally owned entities
- Forced abandonment: which occurs when a business is advised by their own government to abandon a project in response to political violence
- Forced divestiture: When a business is required by their own government to pull out of the host country, after a breakdown in relations between Australia's government and the government of the host country
- Deprivation: which refers to cessation or disruption of operations due to being unable to move inventory, equipment, assets into/out of/around the host country
- Currency inconvertibility/exchange transfer embargo: when the business is prevented or restricted from converting local currency to hard currency or remitting funds outside the host country
- Political violence: which refers to loss or disruption to the business's investment due to physical loss or damage resulting from acts of terrorism, sabotage, riots, strikes and/or civil unrest, malicious damage, insurrection, revolution or rebellion, mutiny and/or coup d'état, war and/or civil war
- Repudiation, termination or other breaches of commercial agreements with government and public sector entities
- Embargoes (import and/or export).
Risk management considerations for businesses with global dealings
Businesses with overseas operations need to maintain a watching brief for red flag conditions over areas of potential disruption and develop a sufficiently agile business strategy to respond to individual geopolitical issues and adapt to evolving risks in the regions concerned.
In developing risk management strategies businesses with global networks are advised to seek to stay abreast of relevant changes and consider conducting risk assessments, such as confidence in the regional governments concerned. Lack of trust and public scepticism increase the risks of consumer boycotts, reputational damage and legislative crackdowns by regulators.
Leverage political risk management expertise
Political risk insurance is designed to protect your offshore projects, investments or funds flow and the Gallagher political risks team is a leading specialist in country risk, well positioned to provide insurance solutions and advice to a broad range of organisations and industry sectors.
In times of global volatility, political risk insurance protection forms a critical part of a business's risk management strategy. Our specialists can help give you the confidence to build for your business future with the knowledge that you are protected against unpredictable eventualities.
