In any trading environment, domestic or international, political decisions and situations can impact on commerce.
Examples range from a violent change of political leadership, such as in war or a coup, to sudden changes in economic or foreign policies resulting in sanctions, tariffs or confiscation.
Political risk insurance recognises that these may impact on the ability of a supplier to deliver goods and services, or a customer to pay for them.
Political risk insurance is usually part of trade credit insurance cover that protects the policyholder from the risks of non-payment of invoices. So, if your customer fails to pay for goods or services – whether this has been caused by a political incident or other reasons as agreed - your insurance company will compensate you.
Political risk insurance definition
Political risk insurance protects the policyholder against the threat of financial loss caused by adverse political events. Depending on the individual policy’s details, this could include:
- Civil unrest – resulting in riot damage or looting, or perhaps the blockade of a port preventing import/export
- Currency changes – perhaps resulting in the inability to convert currency or the sudden and extreme change of a currency value
- Customs and tariffs – an unexpected change in import/export rules
- Expropriation – confiscation of money, property or a business by a government
- Revolution or coup d’etat – violent or non-violent forced change of leadership
- Terrorism or war – making trade with a country unsafe or unviable
Trade credit insurance
Trade credit insurance protects your cash flow so that you still get paid even if your customer defaults. It’s used by businesses of all sizes to protect both international and domestic trade from issues such as political risks and customer insolvency.
Atradius China Trade Credit Insurance works by insuring you against your buyer, not the individual transaction, so every invoice with that customer is covered for the year. In addition to providing protection against unseen adverse events, credit insurance is used by many businesses to promote trade. In particular many businesses use the security of credit insurance to help them secure finance with banks, explore new markets and attract customers with favourable credit terms. Our credit insurance customers work with us, benefiting from access to our information on millions of companies worldwide, to support their due diligence when assessing credit worthiness of trading partners.