The winds of change are ruffling feathers in the international trade markets. Political ideologies around nationalism and protectionism are forcing businesses around the world to assess their international exposure and consider their risk management options. While business owners can’t control the outcome of geopolitical movements, they can control how they assess and manage their global business risks.
“Political risk, like cyber, is starting to hit the front pages on a daily basis. This is forcing companies to take a much closer look at the risks that come along with doing business on an international basis,” said Kyle Samuel (pictured), president of M&T Insurance Agency. “As clients grow more acutely aware of global exposures, the topic of political risk insurance has become more important than ever.”
For any businesses with a vested interest in global trade, political risk insurance can be a useful tool for addressing financial risks related to changes in the policies of overseas governments, tariffs and trade wars, or other unforeseen political events. The challenge today is in the timing of the discussions.
Samuel explained: “If you look at the global political environment and the things that are happening around nationalism and trade protectionism, having discussions around political risk insurance now is like having discussions about property insurance when the fire alarm is going off. Carriers are very concerned about the political risk right now, and, in such a volatile environment, insurance becomes a very complex discussion. It’s definitely possible; it’s just more complex.”
Political risk insurance is a highly customized insurance coverage. The highly volatile global risk landscape actually works in companies’ favors, according to Samuel, because it has created an opportunity for companies to have much more comprehensive and in-depth discussions with their brokers and carrier partners in order to find the best way to structure their protection.
“It’s important to remember that political risk insurance is a long-term strategy. It was never intended to be a short-term solution,” Samuel told Insurance Business. “Now’s a good time for companies to think about the ebbs and flows of the political environment and the global risk landscape, and ask: ‘What can we do today to better position ourselves for global activity or activity that may materialize in different pockets around the world?’ It’s the right time to have that conversation with a broker around long-term strategic planning.
“Most of the large global insurance carriers have political risk expertise, and, candidly, that’s where we would recommend our clients to purchase this coverage. As political risk insurance is a long-term strategic purchase, clients definitely want to be with a financially stable insurance carrier, who is not being opportunistic in the current environment, but rather is committed to the product and has the financial wherewithal to withstand the ups and downs of financial instability.”
When it comes to political risk, the more dependent companies are on third-party suppliers across the globe, especially if those third-parties are located in political hotspots, the more exposed they will be. With clients like this, it’s really important for them to have an in-depth and comprehensive discussions with brokers and carriers so that their policies “are structured to give them the best opportunity to expand to any claim,” Samuel added.
