Timing is Everything.
 Political risk insurance is rarely available when needed.

For a political risk consultant to be of added value to a project or investment they should be brought into the discussion at the planning stage. This rarely occurs in real life, but it is worth mentioning as an ideal. On a practical level political risk insurance can be a tool for reducing costs associated with financing overseas projects. That’s because lenders have innate fears about Nationalization, Expropriation, Terrorism, War, and Revolution. Long before project principals decide to purchase political risks insurance a consultant can explore a myriad of options offered by unlikely sources.
It is quite common for international construction contracts to be let under an umbrella contract with a Construction Manager or Design Engineer assuming the role of Ombudsman on behalf of a Ministry or agency in the host country. The CM bids out packages for various disciplines including Procurement, Detail Design, Design Execution, Mechanical Installation, Civil Construction, not to mention subcontracts within those disciplines. Every single supplier, sub-contractor, or trade contractor is a potential source for political risks insurance.

The cover is purchased on behalf of the Investor or CM whoever bears the financial risk of completion. For a US company investing in an overseas project political risks are generally discussed as part of the insurance budget.
In my experience this entails a kind of late stage anxiety attack when the full scope of the investment risk becomes apparent. Someone senior in the corporation wonders if a five hundred million exposure in a third world country shouldn’t be insured. A risk manager or broker is contacted. Remember the sub-title is about timing. The project is funded, the contracts are in final draft stage, hands have been shaken. The overseas partners, sovereign or private, are pleased. They are not worried about political risks. If the subject comes up at all, assurances are given.

Still the interests of the US investor are different from the host country participants. Political risks are yours to bear. This is when the investing company generally begins to seek guidance on political risks cover: a broker may produce an eye-popping quote for an enormous premium and drastically reduced limits of coverage. The risk manager obtains two more quotes and all three exhaust the same limited market for coverage, Lloyds, AIG, Chubb, Zurich, a few others. It soon becomes apparent that beating the bushes for insurance at this stage of the project is an expensive and disappointing proposition.

The CM has a similar problem. During the course of construction, they are exposed to political risks issues that impact scheduling, delivery, materials, and partially completed work. They may have an investment interest as well as a performance risk. If they have a risk manager that person will be dispatched into the market for quotes on the same project the Investor has. The depleted marketplace has already been tapped.

Why does this happen? Because Political Insurance policies can includes some form of physical loss or damage, they are widely viewed as Property Insurance. The assumption is that, like other forms of project insurance, it can be bought when needed; Builders Risk, Professional Liability, Marine Insurance are generally available when needed.

Political risk insurance is rarely available when needed. No one would plan a five hundred million dollar project overseas and then decide at the last minute to seek financing. That occurs all the time in the hunt for Political Risks protection. Consultants find themselves called in after the private market has been roiled and the project budget has been finalized. The consultant becomes the Persian Messenger.

It doesn’t have to be this way. There are techniques for amplifying available coverage, controlling costs, or reducing project finance costs by involving a political risks consultant in the planning stages of a project. It is amazing what a project investor might qualify for under a host of programs designed to mitigate or transfer political risks. Political risk insurance can be obtained for most projects or investments. Find cover early in the process. Timing is everything.