Handbook of Political Risk Insurance

The “Handbook of Political Risk Insurance” is a research project carried out by the Funk Foundation in cooperation with the University of St. Gallen and two international Credit- and Investment-Insurance Companies. The aim of the project was to create a self-contained publication as a concept, which can introduce the complex matter of Political Risks in an understandable way. This handbook initially defines important terms and pursues to present the status quo in the area of political risk insurance. Practitioners get an overview of approaches and instruments for the identification and assessment of risks. Thereby, they are enabled to expand their risk management in relation to political risks.

The idea for the handbook was developed on the initiative of Prof. Dr. Alexander Braun from the Institute of Insurance Economics of the University of St. Gallen and finally designed and created in collaboration with the Funk Foundation.

This research project is of particular importance nowadays, since the globalization of markets requires international companies to not only consider classic insurance risks, but also “Political Risks”. In addition to a variety of country, product and market-specific risks that can affect any company in the world, there are now more and more political risks.

Aspects of “Political Risks” are for example “Political Violence”, “Condemnation” or “Currency Inconvertibility”. However, a common definition does not yet exist. The Funk Foundation was delighted to support this new handbook which also contains a more precise definition of “Political Risks” in combination with questions about insurances for international companies. According to the new developed definition,

“Political risk means governmental or societal actions, policies or omissions that negatively affect the business operations

and investments of a specific firm or a group of firms in the form of physical damages or economic losses in its home or a host country.”

The definition is phrased more general on purpose and states that companies are often influenced negatively by the results of political risks. Especially investments inside the countries or commercial deals with public enterprises might be affected and can lead to economic penalties or material damage.

The “Handbook of Political Risk Insurance” was created in order to raise awareness for this kind of risks. Above all, the handbook should be used as assistance for risk managers to support their companies in dealing with the consequences of “Political Risks”. Furthermore, it contains a study by the University of St. Gallen that analyzes the demand behavior of companies and shows that companies are heavily exposed. However, it became apparent that insurance solutions only matter for companies which for example have experienced damage, before.

Moreover, precise examples from real circumstances and provisions for prevention and risk reduction are compiled in the handbook.  Thereby, the ability of relating to possible experiences should be increased. Additionally, experts from the reinsurance-economy show ideas to solve the issues of shaping and rating in order to complete the topic of political risk insurance.

In todays globalized world, new international risks for companies come to the fore. To encourage the distribution of the basics of political risk insurance, a free download of the “Handbook of Political Risk Insurance” is possible here on our website.