As the current war with Iran has brought home, companies face a growing array of unexpected risks triggered by volatile geopolitics– including war and its attendant supply-chain shocks, tariffs, and cyberterrorism.  Although most companies maintain robust insurance programs to protect against conventional commercial losses, these policies often limit protection against losses arising directly from political volatility.  As a result, political risk insurance (“PRI”) has evolved from a niche tool to a mainstream risk-management instrument.  This prompts an important question: can PRI enhance your business’s protection against unexpected losses? The answer for many businesses – probably so.

What is Political Risk Insurance?

The global risk landscape has changed dramatically in recent years, both in intensity and complexity.  For the first time in memory, annual surveys of insurance brokers have identified political volatility as a primary risk concern.  A survey conducted by Aon last fall of nearly 3,000 risk managers and executives found a sharp rise in concern over geopolitical volatility and supply chain disruptions.  Similarly, the last annual Political Risk Survey by Willis Towers Watson and Oxford Analytics found that 74% of the globalized companies now rank political risk among their top five concerns.

This concern is not hypothetical. Political volatility can disrupt operations, impact revenue streams, and cause substantial losses for businesses engaged in international trade or investment.  Against this backdrop, companies must assess whether their insurance programs adequately address these risks.

Why Traditional Insurance May Fall Short

Standard commercial insurance policies may respond to certain losses stemming from political volatility, but they typically exclude or limit coverage for the very risks that pose the greatest concern.

For instance, business interruption coverage under a typical commercial property policy is designed to compensate for lost income following a major event, but only when the loss results from direct physical damage to or loss of property.  However, political risks, such as tariffs, embargoes, strikes, or government-imposed restrictions rarely cause physical damage, leaving losses uncovered under the commercial property policy.

Likewise, most companies maintain directors and officers (“D&O”) insurance to protect the company and its executives from losses arising out of alleged wrongful acts in the management of the business.  D&O coverage may be implicated indirectly if, for example, a company’s handling of political volatility results in shareholder lawsuits or government investigations. However, D&O coverage only responds when a claim is brought against the company’s directors or officers (or in some cases the company), but does not extend to the direct financial consequences of the political event itself.

Additionally, many standard commercial property, general liability, D&O and even cyber policies also contain exclusions for losses arising from war or terrorism.  These exclusions are designed to limit the insurance companies’ exposure to politically motivated violence, state-sponsored cyberattacks, and regional conflicts.

Even specialty lines insurance policies, such as representations and warranties insurance (“RWI”), offer only narrow protection for geopolitical risks.  RWI protects buyers or sellers from losses due to breaches of the representations and warranties in the transaction agreement.  Therefore, RWI only covers losses directly tied to those contractual provisions – for example, if a political event affects representations related to supply chains, financial condition, or compliance.  But it does not cover the direct economic impact of the political disruption on the company.

Given these limitations, PRI may be a tool to fill some of the gaps in coverage.

PRI May Fill Certain Gaps in Coverage

PRI acts as “catch all” insurance to protect businesses against losses attributable to political events and governmental action or inaction.

Rhonda D. Orin, managing shareholder, Anderson Kill, Washington, D.C. office

Specifically, PRI typically covers the following non-commercial risks:

• Expropriation: When the government takes or effectively deprives the owner of their property or investment, including outright seizure and measures that have the same economic effect.
• Political Violence: War, terrorism, civil unrest, or other types of political violence.**
• Currency inconvertibility and transfer restrictions: When government action or omissions prevent the conversion of local currency into foreign currency or from transferring funds out of the host country.
• Embargo and Import/Export Restrictions: Government actions that prevent the import or export of goods, which can interrupt business operations.
• License cancellation: Revocation or non-renewal of essential licenses by the host government without cause.
• Breach of Contract: When the host government breaches or repudiates contracts with the investor, particularly when the investor has no access to a suitable legal remedy.

Tailored PRI policies may also include coverage for forced divestment, selective discrimination, business interruption caused by political events, and cyberterrorism.

That said, insurance companies may still attempt to limit coverage even under policies that expressly protect against political risks.  For example, in Hamilton Corporate Member Ltd v. Afghan Global Insurance Ltd., the policyholder lost possession and control of its warehouse to the Taliban during the U.S. withdrawal from Afghanistan.  The policy provided coverage for “[r]iots, strikes, civil commotion, malicious damage, war, terrorism and political violence (including terrorism and sabotage),” but contained an exclusion for “loss or damage directly or indirectly caused by seizure, confiscation, nationalization, requisition, expropriation, detention …”  In a subsequent reinsurance dispute, the court held that the loss constituted a “seizure” and was therefore excluded under the policy, even absent a lawful sovereign act or use of actual violence.

This recent decision demonstrates that policy wording is critical in determining the scope of coverage.  Companies should undertake careful assessment of their insurance programs and potential vulnerabilities.

Assessing Political Risk for Your Company

For any business, the first (and often most challenging) step in leveraging PRI is understanding what political risks could threaten financial performance and long-term viability.  The effectiveness of PRI often depends on aligning coverage with the company’s unique exposure and strategic objections.

Broadly speaking, there are two categories of political risk: firm-specific and country-specific.

Firm-specific political risk refers to political events or conditions, both domestic and foreign, that could negatively impact the company’s operations or profitability – for example, a government breaching or repudiating a contract, revoking licenses critical to operations, or targeted cyberattacks.  Essentially, these risks threaten the operational integrity, legal standing, or contractual rights of a company in a specific context.

On the other hand, country-specific political risks are broader, nationwide risks that indirectly affect the company by altering the overall business environment – for example, government-imposed currency restrictions, tariffs, trade embargoes, civil unrest, or large-scale regulatory changes. While not targeted at a specific company, these risks can disrupt operations, constrain cash flow, and impact profitability, particularly for firms integrated into a host country’s economy.

A company’s exposure to these two categories of risks may also depend on the type of investment (portfolio or direct).  Portfolio investors are typically more sensitive to country-level risks, such as currency restrictions, political instability, or regulatory shifts, because these factors affect the overall economic climate and the value of financial assets held.

Regan E. Samson, attorney, Anderson Kill, New York office

Direct investors may also be subject to these risks, but in general they are more exposed to firm-specific risks, as their physical operations, contractual arrangements, and local investments can be uniquely targeted or impacted by political actions.  Moreover, companies operating across borders – especially those investing in emerging markets and managing overseas assets – may stand to gain the most from PRI, as these organizations face heightened exposure to both firm-specific and country-specific political risks.

By aligning PRI with the company’s strategic priorities, businesses can help safeguard financial performance, protect assets, and ensure operational stability even amid volatile political environments.

Conclusion

Today’s business risks extend far beyond  known risks like fire, flood, or shareholder lawsuits – the familiar  “lions and tigers and bears” in the forest.  Political volatility has made uncertainty a constant feature of the global landscape, adding a new dimension to risk for many companies.  It is important for every company to keep these new uncertainties in mind when buying insurance and to protect against them to the extent possible. & 

**Similar to, but distinct from, PRI is war risks insurance.  War risks insurance protects against loss caused by hostile or warlike actions.  Recently, in AerCap Ireland v. AIG Europe SA &Ors (U.K. High Ct. June 11, 2025), the English High Court held that the lessor’s loss of an aircraft – caused by sanctions imposed following Russia’s invasion of Ukraine in February 2022– was covered as a war peril risk.  On the other hand, however, the court found that the all-risks insurance companies were not liable, because the losses were proximately caused by the war-risk peril.