Political risk coverage in the United States could be a real problem after riots rock the country

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Companies doing business or are based in the United States may take a closer look at insurance against political risks such as government actions and political violence in light of recent events.

Political risk insurance covers businesses and financial institutions exposed to the risk of financial loss due to political events such as government actions against private property, political violence, and acts of terrorism or war.

Events such as the riots that followed certain Black Lives Matter protests in the summer of 2020 and the January 6 violence at the U.S. Capitol, as well as the actions of the U.S. government against companies in the tech and energy sectors have helped to stimulate demand for cover to offset losses resulting from these actions.

Some clients who purchased political risk insurance for regions considered higher risk, such as Africa and Latin America, said their greatest political risk exposure was in the United States, according to John. Minor, National Head of Political Risk Practice for Aon PLC. He said one of the reasons could be the potential for political violence in the United States.

“Interest and demand for covering political violence in the United States is increasing whether you are in a business district where you are directly affected or even outside of those areas,” Minor said in an interview. “There is an autonomous market for insurance against terrorism and political violence, [and] many companies have these programs that cover their assets in the United States. “

Evan Greenberg, CEO of Chubb Ltd., meanwhile, doesn’t see much of a domestic political risk market.

“In the United States, given the rule of law and credit ratings, [have] no real political risk losses in the US and real political risk exposure of what we conventionally supply as a product outside the US in political risk, ”Greenberg said in a fourth quarter 2020 call for earnings. “And, God help us, I don’t expect that to change.”

Zurich North America has also seen few applications for political violence coverage in the United States recently, even though the market is open to scrutiny, according to Lillian Labbat, global head of credit and political risk for commercial insurance.

“Companies generally seek traditional coverage of political risks on their foreign direct investments, including expropriation of assets by the government, political violence and the inconvertibility of currency when repatriating dividends,” Labbat said in an email to S&P Global Market Intelligence. “When offering political risk coverage, one takes into account a country’s history of political unrest. The location of the insured and the flexibility of its supply chain are also two important factors.

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There are several risks in the United States, especially in the tech industry, said Laura Burns, U.S. political risk product leader for Willis Towers Watson PLC.

She noted that there is potential for technology segments such as 5G, artificial intelligence and semiconductors to become “the channel to global domination on a future basis.” The political risk associated with extending natural resources to technology becomes clearer when governments are involved.

“These are horses in the race for [governments] as they attempt to advance their value systems, their technological standards and their influence in the world, ”Burns said in an interview.

Although the US government has not expropriated the assets of US companies, this kind of action enters the equation. Burns spoke of actions such as the non-issuance of export licenses for defense equipment shipped to other countries and sanctions against countries like Myanmar.

“These are examples where the government is playing an active role in defeating a contract for an American company vis-à-vis its diplomatic relations with other countries,” she said.

Despite the availability, most US businesses do not purchase political risk insurance against US government actions due to the country’s independent legal system, which offers a potential legal remedy that they may not have with d other countries, said Aon’s Minor.



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