Political risk, trade credit coverage intertwined but distinct
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Political risk and trade credit insurance are intertwined, with many insurers offering both, but they are also distinct in significant ways.
Trade credit insurance, which was first offered in the 1800s, protects policyholders from the nonpayment of commercial trade debt. According to the Amsterdam-based International Credit Insurance & Surety Association, a trade credit insurance policy will pay out a percentage of the outstanding debt, which usually ranges from 75% to 95% of the invoiced amount.
Political risk insurance provides coverage against government actions that can cause insureds a loss, including confiscation, expropriation, nationalization and political violence.
Its origins are in the 1948 Marshall Plan, which encouraged American investments to rebuild war-torn Europe.
Political risk insurance is offered through private insurers as well government entities such as the Overseas Private Investment Corporation.
Rob Nijhout, executive director of the International Credit Insurance & Surety Association, said if significant trade barriers are thrown up in retaliation for tariffs, “then that is what we would call a political risk rather than a credit risk.”
The group recommends its insureds insure against this.
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