What Constitutes A Breach Of Contract For Political Risk Insurance Coverage?

January 9, 2019

What Constitutes A Breach Of Contract For Political Risk Insurance Coverage? | Niche Trade Credit Sydney

Political risk insurance is key if you’re working in a country where there may be a civil disturbance, political violence, a financial crisis, currency inconvertibility, or any other condition which could result in the loss of foreign direct investment.

This type of investment insurance is designed specifically to protect your company from political risks of doing business in the host government or host country. It may be issued by private insurers and export credit agencies like Niche Trade Credit, a state owned enterprise, or an investment guarantee agency, MIGA (Multilateral Investment Guarantee Agency, for example, or World Bank Group.

But when you’re working in emerging markets and developing countries, with a state owned enterprise or private company, when does political risk insurance cover a breach of contract?

What Is A Breach Of Contract?

There can be many different types of contractual breaches that result in political risk insurance coverage compensating your company for the costs you’ve incurred as a result of the breach.

The most common is the failure to honor sovereign financial obligations. If a financial obligation is not honored by a sovereign nation which has promised to do so unconditionally, this is typically a breach of contract, resulting in your insurance agency compensating your for your loss.

For example, perhaps a government in a developing country promised to compensate you with a $10 million contract for opening a facility in their country. Then, they failed to meet this unconditional guarantee, once you lived up to your end of the deal. This would represent a failure to honor sovereign financial obligations.

However, if a contract is breached in any other way – for example, if the host country expropriates your property, declares your company to be working illegally, or takes another action that violates the terms and conditions of your initial contract, this will likely also be covered by your political risk insurance coverage.

You Need The Right Political Risk Insurance Coverage To Protect Against Breach Of Contract

When you choose a political risk coverage insurer, it’s important to make sure that you choose a policy that protects against all of the major risks that could face your company when working in the developing world, such as:

  • Civil war, insurrection, revolution and political violence
  • Breach of contract
  • Monetary/currency conversion issues or inability to get funds from the state
  • Expropriation of private property

These are just a few of the coverage options that your company has. To protect your business and your profits, it’s important to get coverage for all of the risks that could face your company. We recommend consulting with a political risk insurance professional for more details.

Interested In Political Risk Insurance? Contact Niche Trade Credit Now!

At Niche Trade Credit, we specialise in export insurance and political risk insurance. If you’d like more information, please contact us right away. We’re always happy to hear from new customers.

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