Political risk insurance (PRI) is becoming increasingly relevant as companies contend with heightened geopolitical and economic uncertainty.
Traditionally used in emerging or volatile markets, PRI is now being reconsidered by multinational firms recalibrating their risk management strategies. A new study by Howden, based on a survey of around 500 senior risk and treasury executives in the US, the UK and France, highlighted the scale of the issue.
Growing product adoption
PRI is an insurance product that protects businesses, investors and financial institutions against losses stemming from government actions or political instability, including expropriation, political violence, currency inconvertibility and contract frustration.
According to the Howden report, more than half (51%) of respondents reported a political loss to an international investment between 2020 and 2025. The most common problems were currency conversion and ownership rights disputes (40% each), followed by political violence (33%). While losses generally aligned with the size of investments, some firms reported hits more than 10 times their original outlay. Six per cent (6%) of companies suffered losses exceeding US$100 million, the report said.
Despite recent shocks, multinational companies maintained an average US$50 million annual investment between 2020 and 2025, according to the report. This level of exposure is fuelling demand for political risk solutions. Eighty per cent (80%) of surveyed firms said they plan to use at least one such tool in the second half of the decade, up from 68% in the first half. PRI recorded the largest projected increase in usage, with insurers also reporting rising demand in 2025.
Companies with PRI reported average losses at least US$1.4 million lower than those without cover. PRI was also found to reduce the cost of capital in emerging markets, lowering the country risk premium from around 15% to 11%. That translates into an average annual saving of about US$2 million per investment.
Challenges ahead
However, obstacles to wider adoption remain. Nearly three-quarters (73%) of companies cited lack of understanding as the main barrier, while 54% said they did not see the need for cover. Almost half of respondents were not familiar with the product at all. Even among buyers, concerns about high costs (58%), difficulty in claiming (55%), and restrictive terms (51%) were common.
According to the Howden report, the current environment offers a major opportunity for the PRI market, but insurers and brokers need to do more to demonstrate value and improve delivery.
With instability set to remain a defining feature of global markets, PRI is well positioned to play a central role in protecting cross-border investments, the report said.
