Middle East Upheavals: Bad for Business, Good for Insurance
The news is filled with headlines about the fall of dictators such as Egypt's Hosni Mubarak, the rebellion against the 41-year regime of Libyan strongman Moammar Gadhafi and riots in the formerly peaceful kingdom of Bahrain.
Experts are uncertain about what might go wrong next, which is making companies with large investments in the region nervous. Monaghan, a vice president at Aon's political-risk business, is well aware of the pressures her clients are facing.
"They are concerned about how what's happening in their region could affect their bottom lines," she says. "There is a lot of pressure from all sides. . . . The question is: Who is going to be in charge, and how they are going to treat our clients?"
It's Harder to Get Coverage
All the uncertainty may be bad for many businesses, but at least one product has seen a higher demand as a result: political risk insurance.
And clients who are offered coverage can have as little as two days to decide whether or not to accept it instead of up to 30 days, says Smita Malik, director of commercial insurance at Clements International, which underwrites international schools, nonprofits and nongovernmental organization.
"They have to. . .decide very quickly, " Malik says. "The demand is going up."
Insurance Underwriters Are Nervous, Too
Political-risk insurance has been around for decades and is popular among large multinational firms, such as oil companies, which do business in politically unstable parts of the world. The policies offer protection against adverse government actions such as nationalization, war, civil unrest and terrorism.
Aside from private firms, the Oversees Private Investment Corp., a U.S. government agency that finances companies developing business opportunities in emerging markets, also provides political-risk coverage.
Aon has been increasingly fielding calls from insurance underwriters that are worried about their risk. These companies have started demanding very detailed information about how their clients are protecting themselves from risks, such as their security policies, according to Aon.
"Very rarely does an underwriter come up to me and say `Hey, what's up?'" Monaghan says. But now, she adds, it happens all the time. Until the political turmoil dies down, you can expect this intensified scrutiny -- along with the higher premiums and harder-to-get coverage -- to continue.