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Archive for category: Political Risks

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TRIA Dies in US Senate

 Washington, DC – After the United States House of Representatives approved the reauthorization of the Terrorism Risk Insurance Program (TRIA) on December 10th, the bill died in the Senate last night (December 16th, 2014) after soon-to-retire Oklahoma Senator Tom Coburn blocked the legislation from being called for a vote. Without renewal, the existing legislation expires on December 31st, 2014.

TRIA was enacted after the 9/11 attacks on New York City, which resulted in a majority of insurers declining to write coverage on buildings in NY due to the threat of future attacks. The bill, similar to Flood Insurance through FEMA, provides governmental assistance on systemic, multi-industry losses – in TRIA’s case: terrorism-related.

Coburn’s opposition to the bill stems from a new provision that would require insurance agents and brokers to register with a newly-formed body, the National Association of Registered Agents and Brokers Reform Act (NARAB).

The Property Casualty Insurers of America (PCI) issued the following statement today, expressing concern and disappointment in the bill’s defeat:

It is unconscionable that the U.S. Senate would adjourn without finishing their job and reauthorizing a long-term Terrorism Risk Insurance Act (TRIA) when the threat of a terrorist attack against the United States is at the highest level it has been in a decade,” said David A. Sampson, PCI’s president and CEO. “TRIA plays a vital role in our national economic security. If a massive attack occurs before TRIA is reauthorized, there could be no terrorism insurance coverage or taxpayer protection. PCI is profoundly disappointed by the dysfunction in Washington and we urge the next Congress to address a long-term reauthorization of TRIA immediately when they convene in January.

Without TRIA’s backstop support, fears are wide-ranging throughout the insurance industry that insurers could face insolvency without the legislation, should a terrorist attack occur.

Even with the bill passing, many within the insurance industry are concerned with whether the legislation would address cyber terrorism or not. The bill makes no mention of “cyber,” which leaves a great deal of ambiguity. More on that HERE.

Sources: Bloomburg News, Insurance Journal, Advisen

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Top Risks in Global Expansions

If you are a technology or life science firm considering global expansion, you need to become aware of some foreign risks that need to be managed. Tips to handling foreign risks include:

Establishing a Global Risk Management Program – Handling of foreign risks is different from the management of domestic risks. Foreign risk requires different treatment and a firm understanding of the differences in laws, business practices and procedures for handling certain risks. With an ever-increasing number of firms that are expanding their operations to include facilities on foreign soil, it is important to establish overall goals for your risk management program.

The goals for your global risk management program should include the standardization of risk management controls, and an improved ability to predict potential losses. You will also need to eliminate gaps in your insurance coverage, identify hidden costs in your insurance program and ensure that you are in strict compliance with local laws and are leveraging economies of scale in your insurance program.

Political Risks Play a Role in International Expansions – Political risk is defined as the threat of losing assets, management control, or potential earnings as a result of political action by the host country. Generally speaking, a country with a stable government poses less of a risk than one in turmoil. Specialized Political Risk insurance policies can protect against certain types of perils for companies doing business or conducting operations in foreign countries. These insurance contracts often address business exposures faced by these companies as a result of foreign governmental action. Types of exposures that can be covered under political risk policies include confiscation, expropriation, deprivation, nationalization, political violence and currency inconvertibility. They can also be customized to include export credit.

Economic Risk Come in Different Shape and Size – Economic risks speak to the chance that a host country may impose sanctions that will restrict or regulate the activities of foreign corporations. Most common among these are exchange controls, which restrict movement of foreign money out of the country, tax policies that are often used to control foreign companies by placing large taxes on their products, and price controls in which host countries establish regulations controlling the price range of a business’s goods or services.

Don’t Forget the Cultural Risk – Cultural risk can be as damaging as political or economic dangers. National cultural risk is the possibility of doing something considered unacceptable by the social culture of the host country. Business cultural risk is the threat of doing something inappropriate within the business environment as a whole. Corporate cultural risk is the risk of making a cultural error when dealing with a specific company.

Managing foreign risks can determine your level of success in the global market. The international network of professionals in TechAssure Association can help you establish a solid global risk management program. Contact us to learn more about our members.