American international law firm Jones Day, has said that political risk insurance (PRI) policies may provide corporate policyholders experiencing business losses in Ukraine or Russia with coverage that is potentially excluded under traditional property insurance policies.
In a press release, the firm said that corporate policyholders doing business in either Ukraine or Russia “should not overlook potential recoveries available under their insurance assets”, which includes PRI policies.
PRI policies provide coverage to corporate policyholders for losses resulting from certain types of political events, with covered events ranging from significant changes in governmental policies, laws, or regulations to government unrest, instability, revolution, coups and war.
The losses that are covered by PRI policies usually include compensation for the value of lost or damaged property, assets, or investments, as well as certain business interruption losses, such as lost profits.
Jones Day stated that coverage provided by PRI policies is particularly valuable because it may cover losses that are potentially “excluded under traditional property insurance policies”.
Many insurance policies contain exclusions for losses which are caused by adverse government actions, such as nationalisation, expropriation, seizure, and other takings by governmental entities. The policies may also exclude losses arising out of violent acts of state, which includes war, insurrection, state-sponsored terrorism, revolution, or rebellion.
However, such excluded events are likely to be covered under a PRI policy, therefore providing business continuity, as well as security to corporate policyholders operating in volatile foreign environments.
PRI policies may be able to provide coverage for a number of different types of incidents.
This includes, physical damage to, or destruction of property or assets due to acts of war, expropriation or nationalization of factories and machinery, forced divestiture or abandonment of property or assets, selective discrimination by government authorities against businesses, cancellation of permits or licenses needed to operate businesses, blocking or limiting imports and exports, and seizure or other restrictions on movement of the insured’s foreign currency.
Jones Day have stated that actual coverage for such incidents depends on the terms and conditions of each policy, and may be subject to other exclusions or limitations.
The firm also said: “Corporate policyholders should also keep in mind that such policies may impose certain shared costs on the insured, such as deductibles and, or a percentage share of any covered loss amounts.
“Policyholders that have potentially incurred covered losses under a PRI policy should carefully document losses as they are incurred and provide timely notice to their insurers to avoid other insurance recovery pitfalls.”
In addition, the firm states that policyholders should carefully analyse how to present their claim, in order to maximise their coverage rights and anticipate potential attempts by their insurers to avoid or limit the coverage provided by PRI policies.
Meanwhile, American credit rating agency, DBRS Morningstar recently said that the current conflict, aligned with increased inflation, could lead to insurers being squeezed by claims, while unable to pass on costs to customers.
In addition, Fitch Ratings recently warned that the ongoing conflict is more likely to impact the European insurance sector through second-order financial market volatility, instead of through direct effects from sanctions on Russian entities, or other measures that are currently restricting Russian businesses.