Political Risk Insurance: an industry in search of a business?

There is no common understanding of Political Risk; therefore, there is no standard definition of Political Risk Insurance. We cannot have a common definition of
Political Risk because (technically) it is “uninsurable”; it cannot be expressed actuarially and its nature changes dramatically over time. Furthermore, it is a small
business line in the overall portfolio of multi-line private insurers and re-insurers that hardly catches the attention of scholars and regulators.
The paper traces down the evolution of Political Risk in its major manifestations over the last decades and the main changes produced by the current crisis. In the process
it addresses two key issues: (i) If Political Risk cannot be expressed statistically, how is it priced? (ii) What do agents buy when they buy Political Risk cover?
One tentative conclusion is that the Political Risk business is not an industry or, if it is, it is not about political risk and we knew that. It offers a set of products covering a
wide spectrum of events, mostly cross-border and involving emerging markets.
As industrialized countries get riskier and many emerging markets stronger, it will be
interesting to see how this “non-industry” will evolve in the next future.