If your business is tied in to suppliers in foreign countries, or even if many of your customers are overseas, it may be time for you to consider the risk of not carrying political risk insurance.

Customers and distribution points across the globe are highly vulnerable to the winds of political disruption. This is to say nothing of your supply chain. There are certain risks that you simply have no control over. As the last few years have demonstrated, political upheaval, natural disasters, and civil wars have been exploding everywhere. Because of this, many companies have found themselves at the mercy of risk factors for which there is no real protection.

More and more businesses that rely on overseas revenues are turning to political risk insurance. The potential for any disruption in your supply or distribution pipeline cannot go ignored or unattended to. Risk management specialists everywhere are constantly keeping a watchful eye on global events. Everyone, it seems, is tied together.

According to recent research released by the American Productivity and QualityCenter based in Houston, nearly 80%, of the almost 200 companies they spoke to, had experienced disruptions in their foreign supply or distribution chains in the last year. Over 90% of the companies are “seriously concerned” with regard to future disruption and future risk. Over 60% of them admitted that they had facilities located in highly turbulent countries prone to political turmoil.

Because overseas costs, especially related to manufacturing, can be so much less than in the United States, many companies feel the risk is worth the potential upheaval. When considering the pros and cons of political risk insurance, a few things should be kept in mind:

• There is expropriation risk that would help mitigate risk and loss should a standing foreign government take over your current supplier or distributor or, especially, one of your company owned assets.
• Political violence coverage can help mitigate the possibility of terrorism, civil war as well as open and armed rebellion. There is also coverage for financial risk, money transfers and conversion disruptions or risks. Finally, there is a moratorium risk when a foreign government refuses to allow for regular payments to be made on debt.
• Be certain you talk with your risk management advisor concerning the definition of what a “government” is. Policies can differ on this. How a government operates is another key factor in evaluating your political risk coverage. Politicians and bureaucrats can do tremendous amounts of damage even without acting in “their official capacity” as a standing government.
• Other factors may include certain pre-existing conditions as well as certain currency challenges and the risk that your host country may be subjected to violent intentions from someone outside their borders.

Political risk is, indeed, risky. Meeting regularly with your risk management advisor is prudent when taking into consideration the volatility of the current state of the world.