How To Utilize Political Risk Management

You can utilize this kind of risk management if you venture in emerging markets. If the market that you venture in is not mature enough, you might experience interference from some government actions. This effect is usually felt in issues that deal with loans, contracts and assets. The government may apply political pressure on your business to favor its cronies. You will be more affected if you are operating a supply chain.

According to a leading insurance provider, there has been a 50 percent increase in disruption of supply chains. This is attributed to different factors such as strikes, riots, interference, civil commotion and embargoes.

You will find political risk management useful to mitigate the effects of unforeseen political events. Such events may cause expropriation, confiscation and nationalization of assets, license cancellations, import or export embargoes, destruction of property due to political violence, contract termination, non-payment of orders, non-delivery of goods, divestiture, etc.

The reasons for these occurrences may be lack of political will to make business belonging to non-supporters thrive. The government or citizens may also lack the money to pay for your goods or services because of currency inconvertibility. Moreover, the government may come up with policies that could lead to penalties, increased costs, liquidated damages, forced shutdowns or loss of profit.

In such situations, you need political risk management that provides flexible coverage that is tailor made or standalone for your business. The risk management company should provide you with business facilitation and balance sheet protection. This is possible if the company can provide benchmarking information and it projects the cost of future risk transfer.

Blog Source: http://mdsinsure.blogspot.com/