XI Political Risk Insurance

This chapter illustrates the evolution of a market for investment insurance. The first phase of insurance programmes commenced in the 1950s and was entirely dominated by insurers run by national governments, which sought to promote the outgoing investments of their nationals. Indeed, the purpose of national insurance programmes is tied to the promotion of the national economy. Covered risks are usually expropriation, non-convertibility of currency, and political violence. It is the general practice of government insurers to conclude agreements with host countries that provide for subrogation. Meanwhile, private companies entered the investment insurance market on the assumption of higher efficiency and an acceptable margin of profit. The chapter then looks at the risks covered by political risk insurance, which are similar but not identical with those addressed in bilateral investment treaties (BITs). It also considers how disputes have arisen between insured investors and the insurer when the two sides have disagreed on the interpretation or application of the insurance contract.