Political Risks

The umbrella term “Political Risks” is used in the Lloyds of London insurance market to refer to specialist insurance policies which provide protection from the financial consequences of unforeseen political turmoil around the world.

Political risks and associated contingency risks were pioneered in Lloyd’s market and policies can be purchased to provide continuous coverage for up to a maximum of seven years.

Originally such insurance protection was mainly purchased by oil and mining exploration/extraction operations but today the dangers of politics hang over companies as diverse as fruit growers in Latin America, film producers in Fiji and bankers in Dubai.

Most commonly purchased as protection in respect of emerging markets from political violence (such as revolution), credit risks and wider political risks for a range of clients usually including commodity traders, foreign investors, banks and financial institutions, project financiers and sponsors; forfeiting companies and exporters and importers of goods and services.

Emerging markets continue to be attractive for businesses seeking alternative areas for growth. However, in less mature economies assets, contracts and loans can be adversely affected by government actions. Supply chains are also becoming increasingly more vulnerable.

Due to ever-increasing globalization and complex trading structures, Political Risks insurance coverage is a dynamic, evolving insurance protection which changes to reflect businesses establishing operations into ever more remote locations and seeking protection against more exotic risks.

The insurance coverages can include protection for cross-border risks in respect of assets exposed to political force majeure events such as expropriation, wars, acts of terrorism, civil disturbances, and other forms of political violence.

Risks covered can include:

  • Embargoes, border closures, and other types of government interference including confiscation and deprivation of assets (whether fixed or mobile)
  • Selective discrimination
  • Cancellation of operating licenses or concessions
  • Inability to repatriate dividends or intercompany loans

These and other acts beyond the insured’s control can lead to the cessation of their operations and the failure of their investments, as well as to business interruption losses.

Protection against government-sponsored acts

For companies trading with public and private counterparties insurance can be purchased to protect against government-sponsored acts before and after shipment of goods, including:

  • Unilateral termination of a contract by a foreign government
  • Cancellation of import and/or export licenses
  • Non-delivery for pre-paid goods; non-payment
  • Inability to convert and/or transfer foreign currency
  • Non-honouring of payment instruments such as central bank guarantees or letters of credits
  • Refusal to pay arbitration awards
  • A wrongful calling of contractual bonds

Trade credit

For companies trading with private and public counterparties insurance can be purchased to protect against non-payment risk. Trade credit account can encompass:

  • Traditional structures for sale and/or purchase of goods and services on deferred payment terms or for which advances have been made
  • Buyer and supplier credits and insurance in respect of payment instruments
  • Protection against government-sponsored acts before and after shipment of goods


The Lloyds of London insurance market is particularly adept in creative insurance solutions for assets that are exposed to terrorist and politically motivated attacks, to protect a range of clients usually including businesses (of any size, from companies with global assets to companies with a single critical asset), Individuals Personal Property including contents to Banks and lenders wanting security on loans.

Currently, insurance protection is available to respond to damage from risks such as terrorism, war or riots, and the use of nuclear and chemical-biological devices, to assets ranging from pipelines to vaults and people to stock.

Policies can typically provide continuous coverage for up to a maximum of two years or five years in respect of construction policies.

The insurance market currently provides coverage against politically motivated attacks, offering:

Asset protection for businesses of all sizes

  • Attacks resulting from Terrorism & Sabotage
  • Riots, Strikes, Civil Commotion, Malicious Damage
  • Insurrection, Revolution, Rebellion
  • Mutiny, Coup d’Etat
  • Civil War, War
  • Counter Insurgency
  • Nuclear, Chemical, Biological and Radiological coverage


  • Material damage to insured assets
  • Subsequent Business Interruption following a physical damage trigger

Terrorism Liability

  • Covers financial costs to a company against claims for damages by third parties or employees who are injured in a terrorist attack
  • Extends to third party property damage

Kidnap and Ransom

Kidnapping has plagued unstable countries and countries with extreme disparities of wealth and poverty for many decades. Unfortunately today this crime has spread Worldwide and for both companies and wealthy families kidnaps can occur anywhere with devastating consequences.

Kidnap & Ransom insurance, often referred to in the market as “K&R”, was pioneered in Lloyd’s market. At its core is a critical service – the ability to negotiate a safe and successful outcome to a kidnapping, wherever it may occur and whoever may be responsible.

The policy is typically purchased on behalf of companies, usually to protect all the directors, officers and employees (All family members of these covered persons are automatically included.) and also purchased on behalf of families providing protection for private individuals and their named family members.

The Kidnap & Ransom policy of insurance typically runs for 12 month periods which can be renewed on an annual basis and provides cover for:

  • Kidnap
  • Extortion
  • Hijack
  • Detention

and provides the insured with financial indemnity for :

  • Ransom
  • Loss of ransom in transit
  • Additional expenses
  • Personal accident
  • Legal expenses (Corporate cover only)
  • Unlimited response consultant services (The insurers engage with specialist service providers)

The premium for each of these types of insurance protection varies significantly and is influenced by a number of factors which includes the type assets being protected, levels of protection in place and the location/territories covered by the policy. As a very rough guide, you can expect to see premium rates of 1% to 3% being applied to the asset values for political risks and terrorism. Kidnap and Ransom insurance is significantly less and typically premiums are several thousand dollars per individual covered.

Confiscation, Expropriation, Nationalization, and Deprivation (CEND)

Coverage protects against losses caused by various acts of expropriation, usually the outright confiscation of property or funds. Coverage may be structured to ensure such current assets as bank accounts, inter-company or bank loans, accounts receivable, inventory retained earnings, supplies, and work in progress. Deprivation coverage insures against the risk of a government action preventing the use of the asset (such as denying a permit to run a plant) can be added to the basic policy.

Political Violence (PV)

Protects against losses caused by war, civil disturbance, or terrorism.  Coverage is usually limited to “politically motivated” violence.

As with other insurance contracts, the coverage trigger hinges on a loss occurrence

connected with a specified insurance peril.

Currency inconvertibility (CI)

Coverage protects against losses caused by currency transfer restrictions.  Typically, coverage applies to the interruption of scheduled interest payments or repatriation of capital or dividends due to currency restrictions imposed by the host government.

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