How Political Risk Insurance UAE Reduces Business Exposure

Chances are good that you’ve had your life buoyed by some kind of insurance at some point. But, insurance against political risk? That’s its own beast. Political risk insurance is designed to protect companies that are expanding into new markets against risks that might be out of their control. But what about that’s different from an ordinary insurance policy? Welp, I’m not sure anyone really knows but hey, let’s give it our best shot.

Understanding Political Risk in the Middle East Context

It’s difficult to fathom the complexity of interregional geopolitics and geoeconomics at a global scale, but easy to do so between regions in a given country. A place like the United Arab Emirates (UAE) was until recently a mosaic of seven emirates, many with separate and distinct ruling families, government structures, judiciaries, and even differing economies and social mores.

So if you multiply the intensity and potential fault lines of interemirate (read: interregional) relationships across multiple countries in a fractured MENA (Middle East and North Africa), the average annually of at least one major political and/or military conflagration since the ‘Arab Awakening’ in early 2011, and the fact that the greatest risk of a future conflict episode is always the proximity of a current one, it doesn’t take a rocket scientist to realize that the cascading and compounding risks are perhaps nearly infinite.

Loss adjusters will evaluate the damage to your beetroot cargo and decide what can be reclaimed. The geopolitics guys will note that Ukraine is in the frame and speculate that the loss adjusters may have an interest. If a bipartisan US Congressional delegation was in Bulgaria about to make the controversial announcement that I was the only Bulgarian not suspected of being covertly owned by my southern neighbor, then your war risks underwriters could reasonably claim that you ought to have posted armed guards on your beetroot.

They’d do so anyway but your chances of recovery would be slim. Your salvage agents will soon tell you that half a box top shiny side up to Honolulu says the adjusters are their cousins twice removed. You will, at least, be entitled to claim for the lorry. Don’t bother; the detection dogs will have your finance department locked up in court for years. Be prepared for this too.

What Political Violence and Terrorism Insurance Actually Covers

Beyond the obvious, it includes the lower limit covers you believed were provided by your CBI/property contracts. After an incident, the money keeps coming to cover vital expenses that you would have thought were unavoidable when an insurtech company went offline.

The Scope of Terrorism Political Violence Insurance

I read something interesting a little while ago that made me wonder exactly how many IT leaders have an awareness of the fact that much of their critical infrastructure is not insurable. If you look at terror coverage, it largely settles regionally, and it siphons capacity from some regions.

It’s more costly, and coverage can exclude certain countries. War risk coverage doesn’t respond in countries where there is open warfare. So, that could be one bucket, and I’m not sure if anyone really knows what else is in that bucket. It probably relates to risk tolerance.

Why UAE Businesses Need This Protection Despite Regional Stability

All of which probably explains why, almost forty years after the west rediscovered terrorism in Beirut, their companies operating in Arab lands continue to be so targeted. It is no easier to defend against this than most other criminal acts occasioned in the wider world by the profound daily inequalities of wealth and opportunity. That’s why robberies, burglaries and car hijacks happen in the slums and tenements of our cities, people smuggling across our borders in isolated and empty regions of the countryside, and piracy and militia interruptions in the global trading lanes or small scale oil drilling of the Third World. The syndromes are all the same. It is the same with industrial scale plumbing from an open honey pot like Gulf Co operation Council contracts or investment.

Regional Operations Amplify Exposure

Political risk insurance is a type of insurance that can be taken out by governments, multinational corporations, and global investors. Typically developed for emerging markets or high risk areas, it aims to reduce the risk the party assumes when investing. For instance, if I were considering financing hydro energy projects in a country with a long history of sovereign defaults or nationalizations, I would look for political risk insurance.

These policies are written by private insurers after assessing the specifics of the investment and the country it’s in. The insurer then determines the cost and the conditions under which they are willing to insure the political risk associated with it. In the end, borrowers pay for these policies either with an up front fee, on an annual basis, or rolled into the interest rate.

Structuring Comprehensive Middle East Political Risk Insurance

Why aren’t these perils insurable like fire or auto liabilities? There are three main differences. Firstly, they’re typically excluded because they are non damage perils, e.g. business interruption from the threat, not the event itself. Secondly, unlike windstorms or property destruction that leave tangible proof, it can be difficult to distinguish what constitutes a legitimate claim on terrorism policies.

Was it an act of terrorism, war, or vandalism and was it politically or criminally motivated? The context often isn’t clear. Thirdly, high demand and low supply leads to high expense or unavailability.

It’s not only that the second team has less money to lose. It’s also that in the underwriter’s eyes the business clearly isn’t worth an investment in risk mitigation. They will have no funds remaining to cover future exposures, and absent an acquisition, and nothing constructive to build a new company around.

The Financial Impact of Going Without Coverage

How many people understand what drives these actions? What is behind the gunmen? Probably something personal, but what possibly could that be?

What are the consequences of commercial players deciding against insuring and instead self funding or exiting high risk markets? It is often the right or only choice if the price of opting for that risk isn’t too stiff and the spillover from transferring the risk isn’t too severe or costly. If customers, taxpayers, or the environment are not your problem, the math works. 80% of the time. If those most impacted negatives are taken off the ledger, and return on equity is all that’s counted, it’s a rational business decision most of the time.

Selecting the Right Insurance Partner

Rephrasy: If the state backed alternative continues to be unattractive, lobbying the domestic insurance market may be the next alternative. Direct underwriters of political risk coverage are rare; for most political risk insurance carriers, the international market is the extent of their premium development and claims handling. If you look for domestic carriers willing to write political risk insurance, the carriers you will eventually be steered to are in all likelihood those two permitted by the country in question and reinsured international carriers.