The Need For Political Risk Insurance

The increasing popularity of Bilateral Investment Treaties (BIT's), in the late 1990's-early 2000's, was heralded as a major step forwards for the protection of international trade. Companies investing in developing nations certainly identify political risks as one of their main concerns, and so some commentators have speculated as to whether these new protections would spell the end for political risk insurance. They have noted that treaty rights are more direct, provide wider rights and operate more effectively in favour of the investor. More importantly, treaty rights are free — no need to pay premium to insurers who, the critics argue, are likely to seek to deny any claim, or to block the insured from reaching a political solution on the basis that this affects their recovery rights.