Insurance in an election season
Voices have been lost; wear and tear on individuals’ physical appearance have become conspicuous! All things being equal, many vehicles for electioneering campaigns may rest at least between today and the next 48 hours though some will resume activities when eventual winners are declared. Until now, it has been speeding at Jumbo jet pace!
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Vehicles that were not insured to carry a certain number of passengers did otherwise. The cabins of pick-up vehicles were the havens of activities of some campaign team members in an often reckless manner.
Indeed it is possible there might have been some unfortunate incidents occurring at a few places but not reported in the media. The only reports could probably be to insurance companies for compensation purposes. Some of these claims could be repudiated based on certain ‘don’ts’ which were ‘done’!
Indeed election seasons are seasons of massive activities sometimes in a rigorously dangerous manner!
Risks
Elections being a major agenda in the political life of any country the world over are also times when serious business decisions are made; it is little wonder that many businesses are said to determine whether they are ‘going’ or ‘coming’ when the time approached for leaders to be voted into key positions.
There have also been age-old speculations of some contestants literally desiring to ‘kill’ just to win elections or when they disagree with the outcome of elections, especially if they happen to be at the losing end.
Terrorism
Similarly, terrorism can be linked to the choice of some leaders in flashpoint countries. For instance, the Paris terrorist attacks might have impacted on investor decisions.
While potential investors may adopt a ‘wait and see’ attitude, existing investors will be deeply concerned about securing their businesses, in the event of similar attacks. Sadly though, these threats are largely noticed after they had occurred, as the pre-execution signals are often guarded.
That notwithstanding, the relative macroeconomic stability across nations implies that the economic atmosphere in many developing economies are rife for investment; be that as it may, there are certain national challenges like political upheavals and terrorist attacks, which may not have been envisaged by prospective investors, at the time of making their investment decisions; but these risks could eventually ruin investment fortunes.
Businesses outside Ghana
In the recent past, many indigenous Ghanaian companies have expanded their operations into the West African sub-region, as a result of emerging market opportunities in the sub-region. Notwithstanding these opportunities, the beckoning political and civil strifes in some of these countries leave much to be desired. Indeed, both security and financial pundits have posited that decisions by organizations to expand into the sub-region must consider the following political risks, in particular:
- Civil strife, coups, wars and other acts of politically-motivated unrests including terrorism;
- Expropriation, including abrogation, repudiation and/or impairment of contract and other improper host government interference; and
- Restrictions on the conversion and transfer of local-currency earnings, among others.
In all of these, investors must also note that, while their overseas operations are not covered by a Standard Property All Risks insurance or a stand-alone terrorism policy, they may, however, be covered by a Political Risk Insurance policy.
Political Risk Insurance
A Political Risk Insurance is a specialized form of Insurance that protects companies operating internationally against the negative effects of arbitrary government action, political violence, perils from strikes, riots and civil commotion through terrorism and insurrection, currency inconvertibility and transfer risks. The important thing to note is that cover under this policy is wide and offers the investor good terms of cover that is far more attractive to protect the investor in an overseas economy before the climate deteriorates and becomes unfriendly to investors. Generally, the following two political risk insurances are isolated:
- Contract Frustration: Companies doing business directly with foreign governments, or with government contractors, obtain political risk insurance to protect them against payment defaults, license cancellations, or repudiation of their contracts.
- Asset Protection: Lenders, investors, and contractors with equipment, inventories, or cash in foreign countries purchase political risk insurance to protect their assets against expropriation, political violence, and currency inconvertibility.
Indeed, political risk insurance can also be written to indemnify against frustration of contracts with private-sector entities that might be unable to perform due to local/international government actions or political events that would be out of their control. Similarly, if a business relies on licences issued by foreign governments, then political risk insurance can cover against cancellation of import or export permits, as well as, embargos, boycotts, sanctions, or decrees causing business interruption, payment defaults, or other losses.
Insuring assets against expropriation
Under this policy, protection is sought against confiscation, expropriation, nationalization, and other foreign government actions or political events which would deprive you of your rights of ownership, security interests, or control of your assets situated in other countries. It also covers your ability to repatriate your assets, for example, getting your equipment out of the country after completing a contract or the return of equipment following the termination of a lease agreement.
Protecting currency against inconvertibility
Here also, the protection is against inconvertibility of local currency into US dollars or other hard currency, as well as, the inability to transfer hard currency out of the country. Currency inconvertibility policies apply to losses resulting from financial crisis, hard currency shortages, exchange controls, or arbitrary political decisions by a foreign government.
Covering business against political violence
Under this policy, protection is sought against non-payment, loss of income, business interruption, loss of equity investments, or damage/destruction of physical assets due to political violence. It may also cover war, revolution, civil unrest, rioting, public strikes, armed uprising, insurrection, terrorism, sabotage, acts of malice, or other political events or government actions.
How it works
The amount to be covered under all limits must equal, at least, the book value of the insured investment in the country unless the insured chooses acceptable floor coverage. In such circumstances, there will be no charge for the difference between the floor coverage and the active amount. For most other investment types, premiums are computed based on a maximum insured amount, current insured amount (CIA) and a standby amount.
The maximum insured amount represents the maximum insurance available for the insured investment under an insurance contract. The CIA represents the insurance actually in force during any contract period. The difference between the two represents the standby amount. Separate premiums are charged for CIA and standby amounts. For loans obtained by the investors, premiums are charged on the “covered amount,” the amount of disbursed principal plus accrued interest less principal paid to date and a standby fee is charged for undisbursed principal.
With currency restriction and convertibility, when the laws of the country places restrictions on currency conversions and repatriation, investors are able to recoup all losses that may arise due to in-country currency depreciation etc.
The way forward
As we vote tomorrow to elect a President and Members of Parliament for our various Constituencies, let us be mindful of the fact that, there can only be if businesses are allowed to thrive in an enabling peaceful environment. That notwithstanding, it is worth noting the fact that nothing must be left to chance and insurance measures must be taken to cushion against the ‘just in case’ though I am confident nothing untoward will happen.
With respect to vehicle movement during the season, it is incumbent on insurance companies to continue educating their policyholders especially with respect to aspects of covers that would not be compensated for in the event of an accident. For example, not many people know that no compensation would be paid if a vehicle carrying people in the cabin of a pick-up gets involved in an accident as the cabin is to carry goods and not persons!
