As political upheaval reshapes global markets, more Canadian companies are exploring political risk insurance. Yet many still misunderstand how these complex policies work and what they actually cover, says Patrick Rengger (pictured), commercial account executive and senior advisor at HUB International’s complex risk division.
Rengger said inquiries are increasing, but many businesses approach political risk coverage as if it were a standard property or casualty policy. That assumption quickly unravels once underwriting begins.
“People are asking more about it, trying to get an understanding of their options,” he said. “But there’s a lack of understanding that these policies are very individual and bespoke. They can take a long time to put together.”
Unlike traditional lines, political risk insurance (PRI) is built around a company’s specific project, contracts, and host-country obligations. Each policy must align with the insured’s legal agreements and the political realities of the jurisdiction in which it operates.
Rengger said many clients are surprised to learn that completing a placement can take months. “It’s not like buying a property policy,” he said. “Each one is written specifically for your operation, and the wording is bespoke around your contract and rights.”
That tailoring means underwriters need to review the full contractual relationship between a company and the host government. They examine what rights each side holds and how a breach could occur. If the company violates local law or the terms of its license, a government shutdown would be legitimate and not covered. Coverage applies only when a compliant investor is unfairly deprived of assets or access.
Because every contract differs, negotiations are lengthy and documentation requirements are extensive. “Clients often think the initial pricing discussion is the finish line,” Rengger said. “In reality, that’s just the start.”
Another reason political risk insurance is misunderstood, he said, is its lack of visibility. Claims and recoveries are rarely publicized because most policies are confidential. Public disclosure can create moral-hazard concerns, particularly when governments are involved.
“The nature of these policies means you can’t really tell people you’ve got them,” Rengger explained. “That confidentiality creates a perception problem. People see companies lose assets or suffer from political violence and assume there was no insurance or that it didn’t work.”
In fact, he added, “hundreds of millions of dollars” are paid out globally each year. Individual claims can reach similar figures, yet few outside the involved parties ever hear about them. That silence reinforces the misconception that political risk insurance is untested or unreliable.
Rengger also pointed out that some companies indirectly pay for political risk coverage without realizing it. The largest buyers of PRI are often banks and lenders, which use it to protect loans financing overseas projects.
“When banks lend money for a facility in a higher-risk country, they often have their own political risk insurance in place to make sure that the loan gets repaid,” he said. “They pass on some of that cost through the price of capital.”
That means a borrower may already be contributing to the cost of political risk protection, but the coverage benefits the bank, not the borrower. If a government expropriates or shuts down a project, the lender can recover its loss, while the operating company’s asset remains uninsured.
“If you have your own political risk policy, your asset is protected at least as far as the terms of the policy go,” Rengger said. “You can still pay off the loan because you’ve been compensated for the loss.”
The final misconception, he said, is around timing. Many buyers underestimate how long a thorough policy takes to craft. While simple placements for limited exposures can be completed quickly, comprehensive coverage for complex projects often requires months of analysis and negotiation.
“Underwriters want to know every detail,” Rengger said. “They need to understand the rights and obligations of both you and the government. That’s what’s being insured.”
That diligence is essential because political risk policies hinge on clear, enforceable contracts. If a government cancels a concession for legitimate reasons, the insurer will not respond. If the cancellation is arbitrary or politically motivated, the coverage applies.
“It comes down to what’s in writing,” he said. “The contract is the foundation.”
As geopolitical volatility continues, Rengger expects inquiries about political risk insurance to keep rising. But he cautions that coverage cannot be bought at the last minute or treated as a quick fix.
“People want to move fast, but this is about understanding your exposure and building a tailored solution,” he said. “It’s not a product you can buy off the shelf.”
