Political risk, not surgical strikes, has companies seeking insurance

Threats from IS militants, the Syrian conflict and the migrant crisis in Europe are some of the recent risks that have companies worried, says M Saraswathy.

Political risk cover is gaining importance for Indian firms at a time when global incidents have been on the rise. Threats from the Islamic State militants, the Syrian conflict, violence by the Boko Haram and the migrant crisis in Europe are some of the recent risks that have firms worried.

The Army conducted surgical strikes across the Line of Control on Wednesday night on launch pads where terrorists had amassed and positioned themselves to infiltrate into India. From an insurance perspective, however, very little movement of goods happens across the Indo-Pak border.

War-related situations are not covered by insurers. An industry executive explained compensation for damage due to war could only be provided by governments. Only marine cargo is covered for war-related peril at sea. While extreme situations like war are excluded from political risk cover, violence due to civil disobedience or government decisions are covered.

Ketan Kale of JLT Independent Insurance Brokers said there was increased awareness of political risk cover for investments. It is critical for manufacturing, infra and power.

“Large companies take terrorism cover as a standalone product in India and abroad. With the rise in political violence across the globe, companies are buying such products. Securing a cover for such risks is difficult in certain markets but we cover even risky countries like Yemen,” said Kale.

Private insurance companies like HDFC ERGO General Insurance have launched political risk policies recently for investors, lenders, contractors, exporters and other entities.

Kale said in regions with political instability, the premia were 100-600 per cent higher.

Political risk includes expropriation, currency inconvertibility, political violence, sovereign default and other specific events. Under security risk, kidnapping and ransom, terrorism, civil war, riots, property damage and business interruption are included. 

Initially there was a dearth of reinsurance capacity to cover large political risks. However, there are more than 50 specialist reinsurers in this segment now.