James R. Brakebill

Abstract

Developed democracies in the West are facing a surge of political risk. Democratic institutions are showing their weaknesses as polarization, populism, and trade conflicts sweep across the developed world. Firms and investors with multinational interests have been turning to political risk insurance to mitigate potential losses due to adverse government action. Once limited to emerging markets to insure against risks such as civil war or expropriation, political risk insurance is increasingly being purchased to protect assets from emerging risks in developed economies. While private insurers have been able to respond to the increase in demand for coverage, they are not as well-equipped as their public counterparts. Private insurers lack the information back-channels that only government intelligence networks can provide and do not have the political clout to advocate on behalf of their insureds. Public providers of political risk insurance are typically prohibited from offering coverage for investments outside developing markets and are thus unable to respond appropriately to the new political risks emerging in Western democracies. This Note argues that these restrictions should be relaxed in light of the new threats facing multinational firms and investors that need the backing and support of their home governments.

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