Political risk insurance

Why political risk cover matters in 2025

Political risk insurance protects UK businesses and investors against losses caused by political events outside their control. Typical triggers include government expropriation, political violence, currency inconvertibility, and contract frustration. In simple terms, it helps you keep projects on track and balance sheets stable when politics disrupt trade, payments, or operations.

Recent trends make this cover more relevant. The UK credit and political risk insurance market has remained steady, with trade credit premiums growing strongly in recent years as firms sought protection from supply chain disruptions and policy shifts. In 2025 there is a notable rebound in longer-term cover - 10, 15, even 20-year options - giving confidence for multi-decade projects. At the same time, capacity has expanded in structured credit and political risk, with large single-risk limits available for complex placements. Yet availability can still tighten where underwriters see concentrated exposures, so buyers should plan early.

UN-level analysis points to political risk insurance enabling foreign investment in developing markets by mitigating risks like expropriation and political violence. This aligns with the needs of UK exporters, lenders, and corporates looking to grow internationally while meeting governance standards. Surveys show political risks are directly affecting profitability for most UK businesses, and risk levels have risen across more than a hundred countries since 2021.

Insurance can help manage the financial shock from political events - but it will not remove commercial or operational risk. Our goal here is to make the boundaries clear so you can decide confidently.

What it typically covers and how claims work

Policies are modular. Core political risk insurance may cover expropriation or nationalisation of assets, political violence that damages property or prevents operations, currency inconvertibility or transfer restrictions that block debt service or dividends, and contract frustration due to government actions, including licence cancellations or embargoes. Trade credit variants protect against non-payment owed to political events, such as sovereign buyer default linked to sanctions or policy decisions.

Claims generally require a covered political trigger and a quantifiable financial loss. For example, if a UK manufacturer’s plant overseas is seized by a government, a valid expropriation claim could reimburse the insured value subject to deductibles and limits. If a lender cannot receive scheduled repayments because of newly imposed transfer restrictions, currency inconvertibility cover may apply after a defined waiting period.

Important limitations apply. Commercial non-payment without a political trigger is usually excluded. War or terrorism may be included only when explicitly stated. Sanctions clauses can prevent any payment that would breach UK or international sanctions. Loss mitigation duties are standard, such as attempting to recover funds or relocate operations where practical. Documentation requirements are strict - contracts, licences, financial statements, and evidence of political events are central to successful claims.

Is this cover right for you

This insurance suits UK exporters, project sponsors, lenders, and investors with exposure to jurisdictions where policy, regulatory, or security conditions could disrupt assets, cash flows, or contracts. It is particularly useful for long-duration infrastructure, energy, and manufacturing projects, and for banks seeking capital relief on cross-border loans through structured credit and political risk solutions.

If your operations are domestic only, or your overseas activities are short term with limited capital at risk, the cost-benefit may be less compelling. Some risks may be better managed through contractual safeguards, local partnerships, or diversified sourcing. The key is to map your exposures and consider where a clear political trigger could threaten cash flow or asset value. Where that threat is material, insurance can be an efficient backstop.

Choosing the right level of protection

1. Basic - essential political perils
   • Covers core risks such as currency inconvertibility-transfer restrictions and political violence. Lower limits and higher deductibles. Suitable for exporters with receivables exposure and modest asset footprints.
2. Standard - broader asset and contract cover
   • Adds expropriation-nationalisation and contract frustration due to government acts, plus longer waiting periods tailored to cash flow cycles. Balanced for mid-sized investments and supply chains.
3. Comprehensive - long-tenor project solutions
   • Extended terms of 10-20 years available in 2025 for qualifying projects. Integrates multiple perils, business interruption elements, and bespoke triggers aligned to concession agreements and project finance.
4. Structured credit and PRI blend
   • For lenders and corporates financing cross-border receivables or loans. Can support regulatory capital efficiency and portfolio risk transfer using market capacity that has grown significantly per risk.
5. Optional add-ons
   • Political violence property damage extensions, denial of access, bespoke arbitration or contract frustration enhancements, non-cancellable limits for defined periods, and endorsements aligned to multilateral or export credit agency requirements.

Clear differences lie in tenor, insured perils, limits, deductibles, and evidence thresholds. Longer-term policies suit projects with repayment profiles extending beyond five years, reflecting 2025’s improved capacity for 10-20 year placements.

What affects price - and typical ranges

Price points vary widely. Smaller receivables policies can be relatively modest; complex, long-tenor project covers command higher rates and fees. Treat any figures as guidance only and seek multiple quotes.

Who can apply and what insurers need to see

Most UK companies, lenders, and investors with legitimate cross-border exposures can apply. Insurers will ask for detailed information on ownership, governance, compliance policies, and any sanctions exposure. Transaction documents, licences, permits, feasibility studies, cash flow models, and security packages are typically requested. For trade credit flows, past due data, buyer concentrations, and payment terms are relevant.

Common decline reasons include sanctioned jurisdictions, insufficient transparency, weak contractual protections, concentration risk that exceeds market capacity, and projects whose risk profile conflicts with underwriting appetite. Where risks are borderline, underwriters may propose reduced limits, higher deductibles, shorter tenors, or specific exclusions. Preparing a clear risk narrative improves outcomes.

From quote to claim - the simple path

1. Map your exposures and decide which political perils matter most.
2. Gather contracts, licences, financials, and compliance documentation upfront.
3. Request quotes for multiple tenors, limits, and deductible combinations.
4. Compare exclusions, sanctions clauses, waiting periods, and claim evidence.
5. Bind cover after agreeing endorsements, reporting duties, and premium terms.
6. Monitor risk, report material changes, and keep documentation current.
7. If a trigger occurs, notify promptly and follow the claims protocol exactly.
8. Work with the insurer to mitigate loss and evidence recoveries.

Balanced view - benefits and trade-offs

Key checks before you commit

Review excesses and waiting periods, especially for currency inconvertibility and contract frustration, as these directly affect cash flow timing. Confirm territorial scope, named insureds, and any co-insurance or coinsurance structures. Examine exclusions for sanctions, war perils, illicit acts, and failure to maintain permits. Check sub-limits for business interruption and debris removal where applicable. Understand renewal terms, potential price movement at expiry, and any non-cancellable elements. Make sure you can meet reporting and documentation duties throughout the policy term, not only at inception.

Alternatives and related protections

1. Trade credit insurance - for commercial non-payment risk without a political trigger. Useful for diversified receivables in lower-risk markets.
2. Export credit agency cover - often suited to large or strategic deals with UK policy alignment and longer tenors.
3. Hedging and escrow structures - financial instruments that manage transfer risk and timing rather than insuring loss.
4. Contractual protections - step-in rights, international arbitration, or political risk sharing with counterparties.
5. Political violence property cover - focused on physical damage and business interruption from violent events.

Frequently asked questions

Q: Is political risk insurance the same as trade credit insurance? A: No. Political risk insurance responds to defined political triggers, such as expropriation or transfer restrictions. Trade credit insurance typically covers commercial non-payment. Some policies blend both, but triggers and wording differ.

Q: How long can cover last in 2025? A: Terms of 10, 15, and 20 years are increasingly available for qualifying projects. Longer tenors suit capital-intensive investments with extended repayment schedules. Availability still depends on risk, sector, and jurisdiction.

Q: Who provides this insurance? A: Capacity comes from private insurers, Lloyd’s markets, and export credit agencies. Structured credit and political risk solutions can aggregate large limits for complex transactions, subject to underwriting appetite.

Q: What evidence is needed for a claim? A: Expect to provide contracts, licences, financial records, and proof of the political trigger, such as official decrees or transfer refusal. Policies specify waiting periods and documentation standards that must be met.

Q: Will sanctions stop a payout? A: Insurers cannot make payments that breach sanctions. Policies include sanctions clauses. Always check whether your counterparties, banks, or jurisdictions are sanctioned before binding cover.

Q: Are premiums tax-deductible? A: Treatment varies by entity and jurisdiction. Speak to your accountant or tax adviser. Insurers cannot provide tax advice and policies do not guarantee tax outcomes.

What to do next

If you have cross-border exposure, map the political triggers most likely to affect your cash flow or assets. Compare quotes across different tenors, limits, and deductibles, and read exclusions carefully. If you decide to proceed, keep documentation organised so claims can be evidenced quickly. You remain in control at every step.

Important note

This guide is general information, not personal financial advice. Policy terms vary by insurer and jurisdiction. Always read the full wording, endorsements, and exclusions, and seek professional advice where needed before making any decision.