Political risk insurance in Canada seeing more inquiries, few takers 

Political unrest is increasing globally, and Canadian commercial clients are noticing.  

Though Canadian clients are inquiring about political risk insurance more often, that’s not exactly translating into an increased uptake of policies, Patrick Rengger, commercial account executive at Hub International, tells Canadian Underwriter at the RIMS Canada Conference in Calgary. 

He spoke in a Tuesday RIMS session on political risk insurance, and caught up with CU to discuss the highlights.   

Political risk insurance responds to risks that are generated by political actions or events — including acts by governments — that disrupt or jeopardize that company’s operations there. Political risk includes acts of political violence (terrorism, sabotage, revolutions, etc.), or wider political acts and regulatory changes that can hurt the company’s operations.  

“Globally, everyone can see the uptick in political violence, some of it is directed against people, which is tragic…but it also can impact companies,” says Rengger. 

Country of risk 

Yet Canadian companies are generally behind the curve when it comes to buying policies to protect against political risk, he says. 

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“There is an uptick in inquiries,” says Rengger. “Some [companies] are very proactive, but there is an increasing, yet fairly slow recognition that this volatility can impact their operations.” 

Part of that boils down to the fact that many political risk insurance policies are longer term contracts: “three, five, seven, or 10-year policies that can’t be cancelled by the insureds just because the situation gets riskier,” says Rengger.  

And companies headquartered in developed countries tend to be slower on the uptake of political risk insurance. There are exceptions though.  

“For example, European companies who tend to look at political risk insurance as more of a matter of course, they’ll buy it,” he says. “They buy property [insurance] to protect their property assets. They buy liability to protect their liabilities. They buy political risk to protect against unforeseeable actions by governments or non-government access. 

“Canadian companies traditionally have been a bit more reluctant or complacent about that.” 

But companies’ reluctance to protect against their political risks could spell worse outcomes should an unforeseen or downplayed risk materialize.  

That should be “slightly troubling” for commercial brokers, “because it’s a fast-moving political risk environment globally,” says Rengger. “By the time the risk is completely obvious, you can’t buy the coverage.” 

Political risk assessment 

The political risk playing field has levelled out globally. 

“Normally, you would say, ‘Well…some countries [are] volatile, and kind of always have been,’” says Rengger. “But now you’re seeing more generalized volatility across the world and increasingly in places and jurisdictions where you wouldn’t have considered such political risk volatility to be a concern.” 

According to a handout from the RIMS session, current political risk insurance hotspots (from high- to medium-risk) include Argentina, China, the Democratic Republic of Congo, Rwanda, Iran, Mexico, Russia, Taiwan, Ukraine, Venezuela, and parts of West Africa. 

Rengger shared some examples of times where political risk insurance activated for Canadian companies.  

“Earlier this year, a Canadian mining company in West Africa had a long running tax dispute with the government and the government basically upped the ante and said, ‘Well, you’ve got $100 million of inventory of gold. We’re going to take that and we’re going to stop you from operating.’ They basically had to exit that country and lose, effectively, the benefit of those assets. So that would be a classic version of [government] confiscation.” 

He also shared an example of a Canadian company that was operating in the Middle East and North Africa that had to abandon its operations after a series of political protests and state insurgencies. 

Alyssa DiSabatino

Alyssa Di Sabatino has been a reporter for Canadian Underwriter since 2021, covering industry trends, market developments, and emerging risks.