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Political risk coverage for US may be live issue after riots shake country

Companies that do business or are based in the U.S. could be taking a harder look at insurance for political risks such as government actions and political violence in light of recent events.

Political risk insurance covers businesses and financial institutions at risk for financial losses due to political events such as government actions against private property, political violence and acts of terrorism or war.

Events such as the riots that followed some Black Lives Matter protests in the summer of 2020 and the Jan. 6 violence at the U.S. Capitol, as well as actions by the U.S. government against firms in the technology and energy industries have helped boost the demand for coverage to offset losses from those actions.

Some clients who purchased political risk insurance for regions seen as higher risks, such as Africa and Latin America, said their biggest political risk exposure was in the U.S., according to John Minor, national practice leader for political risk for Aon PLC. He said one of the reasons could be the potential for political violence in the U.S.

"The interest and demand for covering political violence in the U.S. are increasing whether you are in a business district where you are directly impacted or even outside of those areas," Minor said in an interview. "There is a standalone terrorism/political violence insurance market, [and] there are a lot of companies that have those programs that cover their assets in the U.S."

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Chubb Ltd. CEO Evan Greenberg, on the other hand, does not see much of a domestic political risk market.

"In the United States, given rule of law and given credit ratings, there [have] not been true political risk losses in the United States and true political risk exposure from what we classically deliver as a product outside the United States in political risk," Greenberg said during a fourth-quarter 2020 earnings call. "And, God help us, I don't expect that to change."

Zurich North America has also seen few requests for political violence coverage in the U.S. recently, even though the market is open to considering it, according to Lillian Labbat, global head of credit and political risk for commercial insurance.

"Companies typically seek traditional political risk coverage on their foreign direct investments, including government expropriation of assets, political violence and currency inconvertibility on dividend repatriation," Labbat said in an email to S&P Global Market Intelligence. "When offering political risk coverage, a country's history of political turmoil is considered. The insured's location and flexibility in their supply chain are also two important factors."

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There are several risks in the U.S., particularly in the technology industry, said Laura Burns, a U.S. political risk product leader for Willis Towers Watson PLC.

She noted that there is the potential for technology segments like 5G, artificial intelligence and semiconductors to become "the conduit to global dominance on a going-forward basis." Political risk associated with natural resources extending into technology becomes clearer when governments are involved.

"Those are horses in the race for [governments] as they try to advance their value systems, their tech standards and their influence in the world," Burns said in an interview.

While the U.S. government has not been expropriating American company assets, that sort of action goes into the equation. Burns pointed to actions such as the nonissuance of export licenses for defense equipment being shipped to other nations and sanctions against countries like Myanmar.

"Those are examples where the government is taking an active role in frustrating a contract for an American company vis-à-vis its diplomatic relations with other countries," she said.

Despite the availability, most U.S. companies do not purchase political risk insurance against U.S. government actions because of the country's independent legal system, which offers a potential legal recourse that they may not have with other nations, Aon's Minor said.