Today, large swaths of the globe stand at the brink of political violence and armed conflict with some areas in active warfare. Russia’s ongoing war in Ukraine, Israel’s armed conflicts against Hamas in Gaza and Hezbollah in Lebanon, and the simmering tensions regarding China’s territorial claim to Taiwan and other disputed territories in the South China Sea are just a few international conflicts that grab daily international headlines. Turmoil in the global markets stemming from the imposition of tariffs between the U.S. and some its trading partners has raised concerns of a global recession that could further destabilize governments and currency in emerging markets. But in this period of uncertainty in the international order, companies with substantial international investments or operations may face increased risks of expropriation, currency instability and political violence in jurisdictions previously thought stable. Indeed, insurance company Allianz considers about 100 countries to be at “high or extreme risk of civil unrest.”
The economic repercussions of these international hostilities and recent disruptions in the global markets are reverberating throughout the global business community. In addition to the risk of outright expropriation of assets by the host country, political violence can lead to actual or constructive deprivation of property. The threat of an escalating trade war—even between previously stable trading partners—increases the risk of embargoes or other export restrictions that restrict the ability to bring products from the host country to the global market. An annual business survey published in 2024 by Willis Towers Watson revealed that over 70% of responding companies have already experienced a “political loss.”[1] And the Insurance Institute of Canada expects political risk and social unrest to intensify globally in the coming decade.[2] Unsurprisingly, according to Allianz, “political risks and violence” rank among the global business community’s most pressing risks for the future.[3]
To insure their interests against the potential economic consequences of global unrest, many companies often turn to their property or business interruption policies in the face of losses from war and political risks. While these types of financial losses due to political or war risks may be excluded under property insurance and business interruption insurance, there are political risk or war insurance products that fill the gaps in more standard policies and provide tailored coverage for these types of losses. It is important for companies to understand these coverages, whether they currently exist within their coverage towers, and how to correctly make claims under these policies in the wake of a loss.
Political Risk Insurance
Political risk insurance protects companies’ foreign operations or projects against risks stemming from certain political events and governmental acts. While the coverages vary, political risk policies commonly insure against the following exposures:
- Expropriation or Confiscation of Assets. This coverage protects against the risk that the host government will act to interfere with an insured’s ownership interests in a project. It typically insures losses from a host country’s confiscation or nationalization an insured’s assets. For example, Venezuela’s nationalization of oil companies in the 2000s could be insured by this coverage.
- Embargo and Export Controls. This coverage protects against losses resulting from governmental measures by the host country imposed to restrict or prohibit the exportation of goods or technologies to certain countries or entities. This coverage is particularly important in the current environment with the looming threat of retaliatory trade restrictions in response to U.S. tariffs or economic sanctions, particularly in regions of the world with close ties to China or Russia.
- Currency Conversion. Currency conversion insurance, also known as foreign exchange insurance or forward exchange insurance, protects businesses from the risk of losing money due to the inability to convert, transfer or repatriate funds held in the currency of a host country related to an investment into hard currency. Recent hostilities around the world and shocks to the global financial system has led to volatility in exchange rates and increased the currency conversion risk investors face in developing nations.
- Abandoned Assets. This coverage protects an insured from losses when political violence makes it impossible for an insured to continue working. For example, losses suffered when businesses were forced to abandon assets in Afghanistan during the United States’s withdrawal, or Southern Lebanon during Israel’s recent military campaign could be insured under this coverage.
- Political Violence. This insurance typically covers loss of or damage to tangible property and assets and any resulting lost profits and earnings that occur in the wake of wars, revolutions, or similar events. For example, property damage suffered by businesses following the recent protests about pension reforms in France, protests concerning the results of elections in Brazil and Argentina, and successful coups in Burkina Faso, Niger, and Gabon, could all be insured under this coverage.
War Risk Insurance
War risk insurance insures damages or losses from events such as war, warlike operations, invasions, insurrections, riots, strikes, and terrorism. It is most commonly used in the aviation and shipping industries and may be issued as a stand-alone policy. Generally, it covers damage to insured vessels, aircraft, cargo and property, as well as liability and loss of income from war-related events. The three main types of war insurance are Hull Risk Insurance, Cargo War Risk Insurance, and Marine Liability War Risk Insurance.
- Hull War Risk Insurance. These policies cover physical loss and/or damage to the insured vessel from acts such as missile attacks, bombings, terrorism and other war-related events.
- Cargo War Risk Insurance. These policies cover loss from damage to goods in transit due to war-related acts and hostilities such as piracy, seizures and sabotage.
- Marine Liability War Risk Insurance. These policies cover legal liabilities arising from war-related events that cause events like damage to third-party property and personal injury claims.
Coverage Best Practices
Below are some steps companies should take to maximize coverage under these policies in the event you face a loss of foreign investment due to political risk or war.
- Consider whether your company purchased these types of policies. If it did, locate the policies and keep them readily accessible. If it did not purchase these policies, consider the locales your company does business in and whether these policies should be purchased.
- Carefully review your policy and consider all sources of coverage in the policy. Policy holders should also closely review the breadth of coverage available. The coverage forms for these policies vary greatly and coverage in one policy may not be available in another. Further, there is much discourse regarding certain policy terms like “warlike operations, “hostilities,” “piracy” and “seizure.” Many insurers have taken contradictory views as to how these terms should be interpreted.[4] In sum, policyholders should not assume what is or is not covered under these policies and if in doubt, it should discuss its coverage with an insurance coverage attorney.
- Check the policy for when notice must be given and any other time limitations or hurdles. Some of these policies require that proofs of loss be filed within a certain amount of time.
- Review the controlling law in the policy. Often, these policies are purchased for foreign locations and contain choice of law provisions that dictate the laws of unexpected places. For instance, if a California company buys a policy for political risks in Saudi Arabia, Saudi Arabian law may govern. This is an issue to discuss with your broker when the policy is placed.
- Pay close attention to the coverage territory of your policies. You may think there is global coverage when in fact, losses in certain locations are excluded.
- Consider all sources of coverage. While political risk and war risk policies can be invaluable sources of coverage, do not assume other insurance does not apply as well. For example, if there is a civil authority order issued and there is no outbreak of war or related hostilities, related losses might be covered under a traditional property or business interruption policy. And once there are actual hostilities, war insurance may also provide coverage.
If you have any questions regarding the content of this article, please do not hesitate to contact the authors or other members of McGuireWoods’ Insurance Recovery Practice.
[1] Political Risk Survey Report 2024, Willis Towers Watson, May 22, 2024, available at https://www.wtwco.com/en-us/insights/2024/05/political-risk-survey-report-2024.
[2] Increasing political risk to impact P&C insurance – report, Insurance Business Magazine, April 3, 2024, available at https://www.insurancebusinessmag.com/ca/news/breaking-news/increasing-political-risk-to-impact-pandc-insurance–report-483606.aspx.
[3] The top 10 global business risks for 2024, Allianz, January 2025, available at https://commercial.allianz.com/news-and-insights/reports/allianz-risk-barometer.html#top10.
[4] For example, in Merck & Co. v Ace American Insurance Co., 293 A.3d 545 (N.J. Super. App. Div. 2023), insurers argued that the term “hostile” should be read in the “broadest possible sense, as meaning ‘adverse,’ ‘showing ill will or a desire to harm,’ ‘antagonistic,’ or ‘unfriendly.’” Any action that “reflects ill will or a desire to harm by the actor,” the insurers argued, should fall within the exclusion. Id. Yet, in other actions, some of these same insurers have argued that “hostile” should be interpreted very narrowly and should only cover acts that are clearly connected to an ongoing war by a sovereign nation.