Political Risk Insurance – Ukraine War Drives Interest

May 18, 2022 | News

Taiwan Soldiers

Russia’s invasion of Ukraine has made companies more aware of the potential for upheaval overseas, driving interest in political risk insurance for two other potential hot spots: China and Taiwan.

A self-ruled island about 100 miles from China, Taiwan had long been regarded by companies as a safe bet. But companies have become increasingly concerned about a potential conflict between China and Taiwan and have expressed interest in insuring their operations in both places against potential violence and disruption.

What recently has happened in Eastern Europe, Russia and Ukraine has just raised great awareness about political risks in general.

There is concern about the potential for China getting even more aggressive with Taiwan, particularly in the wake of Russia invading Ukraine. Political risk insurance has seen an influx of new clients with Boards questioning their political risk exposure.

Beijing regards the island of Taiwan as an integral part of the People’s Republic of China, while the government based in Taiwan, known formally as the Republic of China, views itself as a sovereign and independent state. Tensions between the two have risen in recent years as China has suppressed Hong Kong’s democratic aspirations and repeatedly dispatched military aircraft into Taiwan’s air-defense zone.

Political risk insurance pays companies when conflicts boil over. A relatively niche category of insurance, it covers a variety of hazards other insurance types tend not to touch: a missile slamming into a factory, the nationalization of private assets following a coup or currency stranded in a country by a government action.

Much of the Taiwan-related political risk insurance, in particular, has been bought to cover operations in the technology and power sectors. Taiwan is the world’s foremost producer of semiconductors and has a growing offshore wind-power industry. In mainland China, companies with manufacturing operations often seek political risk insurance.

China and Taiwan political risk has become more expensive to insure amid escalating U.S.-China tensions. Larger policies are also somewhat harder to source, as companies have recently sought to insure potential losses of more than $1 billion, straining capacity.  Pricing has increased and is likely to continue to rise with a few Underwriters declining to write more China risk. 

A few years ago, Taiwan would have been considered a very low-risk country that you wouldn’t even buy political risk cover on. Now it’s got a higher profile and it’s something policyholders want to cover.

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