What is Political Risk Insurance?
Shipments to otherwise financially strong buyers outside of the United States and Canada may not necessitate the need to cover such buyers from 'commercial' risk of loss perils such as bankruptcy and slow payment behavior. However, there is another set of risk of loss perils that can jeopardize the full and timely payment of a supplier's invoices to such international customers - 'Political' Risk of Loss Perils. Political Risk Only Insurance covers a number of risks that are usually beyond the control of the supplier, caused by the host government of the supplier's international buyer (Buyer). Such 'political' risks of loss events insured include:
- Inability of the Buyer to obtain U.S. Dollars or other approved currency as required in the invoice and sales contract (Approved Currency).
- Failure of the Buyer's home country to convert local currency to U.S. Dollars or other Approved Currency and transfer same to the supplier in the supplier's country when such failure is not due to the fault of the supplier or Buyer.
- Cancellation or non-renewal of any export license.
- Cancellation of previously issued, valid import license.
- War, hostilities, civil war, rebellion, revolution, civil commotion or other like disturbance or the confiscation, expropriation or nationalization actions (arbitrary and discriminating) taken by a governmental authority in the Buyer's country.
Political Risk Only Insurance does NOT cover a loss resulting from a Buyer's insolvency, slow pay behavior or foreign currency devaluation. These latter risk of loss event perils are deemed to be 'commercial' risks of loss and not insured under Policy Risk Only Insurance contracts.
An example of a Political Risk event that may have caused losses to U.S. exporters occurred in September, 2006 when the Japanese Government suspended (banned) the importation of U.S. supplied beef and other meat products. Shipments moving to Japan were diverted or resold at a loss to other countries or even quarantined in Japan as a result of a U.S. shipment of veal that contained Bovine Spongiform Encephalopathy which was banned by Japan.