How to Assess Political Risk Insurance UAE for Your Needs

Everytime fuel prices go up, we’re bombarded with the same old predictable lament: It’s an “unwelcome” addition to “already” high cost inflation (you name the rate), reducing “whatever” we’ve still got left over for things that “don’t” matter not $4 a gallon gasoline. The “most” negative contributor to the rate of economic expansion “is” about to take the “next” bite out of the recovery is “oil induced inflation.” There’s nothing “new” political season about how each candidate has had to express his or her view of how “America’s energy crisis” should impact our foreign policy, economy, and layout for society.

But when any of the current crop (or future announcers) get on that, “we” can and should rid “ourselves” of dependence on “foriegn” sources of oil that’s exporting so much food from our larders, I wish someone would mention one thing: “We would starve” if we were no longer dependent on “foriegn” supplies for our oil literally. And by oil, I mean energy, but let’s save that “for” another time.

There are “surplus” food supplies for at most half a billion people, assuming they are spread equitably around the table and everyone goes “heads down” to eat their share. This includes “yesterday’s grains” still suffering a day’s cutting 36 hours later. Probably the feral pigeons fancied themselves on a trip to the seaside after imbiding of the Spanish “bird beach” that day. They’re still eating “surplus” pecking leftovers today for some unknown reason.

Understanding Political Risk in the UAE Context

Isn’t it interesting to think about political risks that way? It’s less about the situation itself and more about how well you play your hand. In the classic tradition of all risk, political risk is not inherently “good” or “bad” , it is just risk. The outcome can be a positive or a negative, depending on the company’s starting strategy and how well it re writes its strategy after the event.

There is no such thing as an isolated adverse external event. If some change in the political environment imposes costs or constrains revenues and profits, companies will typically react with some change in strategy. Policymakers often make the situation worse by their reaction to a risk; clearly, strategies by affected companies can do so as well. This may be one of the most counterintuitive propositions in politics and strategy as “boycott, divestment, sanctions” movements and corporate efforts to influence political action of this sort receive popular support.

Peace and freedom widely shared would be dull on Wall Street. It would also be dull in the realm of politics. The anti South African campaign in the U.S. against institutional investment in Africa in the apartheid era is an example of anti strategic politics. It impoverished millions across Africa as investors left the continent, but it made us feel good!

Rephrasy version: The way political risk insurance works can be very different depending on the insurer and location. Some insurers subscribe to a more cautious, “claims control” management philosophy. In practice, this simply means their policy of not blocking (or trying to block) claims in the event that clients have long term risk (or damage) without claims tends to become we block (or try to block) claims for this or that reason.

In contrast, a more “loss mitigation” approach management philosophy sees insurers work hard to quickly rubber stamp the payment of all legitimate risks in full in order to close the claim and nip things in the financial arbitration. You don’t want the latter being the process you have to go through to obtain a large claims payment in lieu of a covered loss or your business tax credit, so the politics get pretty ugly sometimes, e.g. the media reporting that you or your client are bringing a politically motivated case against the taxpayer in a well-known overseas tax haven, or that you hope to be “too big to sue” for a denial or partial settlement of a covered claim of political risk.

Key Components of Political Violence and Terrorism Cover

What is covered under property insurance and what is not? Most definitions describe it as harm to physical objects resulting in direct physical loss, harm, or destruction. But what about lost revenues resulting from the same causes? Or the cost to research, replace, or restore compromised data that was not physically damaged? What if your suppliers are shut down due to a covered event, leading to necessary slowdowns or production halts at your facility?

What is terrorism, anyway? We all think we know, but it’s a slippery concept one that lends itself to a shocking variety of political and financial interests from both the perpetrators and the defenders of the event(s). “One man’s terrorism is another man’s freedom fight,” as they still say. It’s a particularly dangerous form of marketing, not just for what it does in the form of the immediate event but for what it might prompt the government and the population of a nation to do in response to it.

The bad news is we’re hearing a lot more about the potential for dirty bombs. The good news is nerve gas and biological agents don’t seem to be in the cards. That doesn’t make for much of a silver lining, though, does it?

Specialized Extensions Worth Considering

We also suggested that some tailoring of cover to avoid certain risks could be more transparently based on their (lack of) insurability than on concerns about moral hazard. Yet in today’s more cautious insurance marketplace where benign loss experience often substitutes for underwriting skill, suppliers might inaccurately treat readily insurable risk categories as if they contain too much of these “uninsurable” risks. Abandoning these because they consider expropriation and currency inconvertibility to be uninsurable would be a lousy insurance policy if drought or flood aren’t.

Assessing Your Organization’s Exposure Profile

There are countless real-world examples and scenarios I could use to support this point, but for simplicity, let’s consider locking the doors on a house: we have different vulnerabilities if we are protecting against raccoons than if we are protecting against a determined burglar. Raccoons have been known to open locks, but the standard locks and mechanisms that designed to work for raccoons are typically not the simplest choice if one’s adversary is a determined burglar.

Given the high streak raccoon who has learned how to unlock a simple doorknob lock, the optimal raccoon protection may not be the optimal approach for a determined burglar, even if raccoons actually dominate (and I have heard the raccoons are winning).