Defence & security, explained.
Vehicles in Kyiv, Ukraine, queue at a petrol station due to fuel shortages (Rick Mave/Getty)
So you want to insure your business against the risks of war? It may not be as farfetched as you think.
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A new era for political risk insuranceA new era for political risk insurance
“Geopolitical risk” used to be a bespoke reference used by businesses operating in places where coups, uprisings, and currency collapses were possible. Now geopolitics is entangled with every facet of international commerce, including supply chains, commodity flows, export permits, sanctions regimes, and regulatory decisions. As more and more markets become vulnerable to adverse government intervention or political instability, these risks can no longer be overlooked.
PRI could act as an important handbrake on accelerating economic fragmentation.
Political risk insurance (PRI) is designed to sustain international commercial activity in an uncertain geopolitical setting. Currently offered by 61 international insurance carriers, it is tailored to specific country risks and business plans, with cover usually lasting three to five years. Premium costs vary significantly – as one broker said, from “the thousands into the millions of dollars depending what [you] are after”.
To meet demand, insurers have expanded their political risk offering to cover events such as foreign asset seizure, licence cancellation, political violence, terrorism, and war. But as these risks proliferate, the availability of products that cover the most extreme (and costly) scenarios is anticipated to decline even as capacity is built into the market. There is, inevitably, a point at which geopolitical conditions make certain types of PRI commercially unviable, or an insurer becomes overexposed.
Once the domain of institutions such as the World Bank’s Multilateral Investment Guarantee Agency (MIGA) and the former US Overseas Private Investment Corporation (OPIC) to encourage foreign investment in emerging markets, recent global turbulence and the impending Basel risk reforms have driven the growth of PRI. A recent Howden survey found over half of global corporates had suffered at least one political risk loss between 2020 and 2025 – with some reporting losses more than ten times their initial investment. Unsurprisingly, around 80 per cent of multinationals now expect to adopt some form of geopolitical risk mitigation in the next five years. For many, PRI reframes geopolitical problems as an opportunity to expand into new geographies and/or asset classes, gaining competitive advantage over unprotected rivals.
The benefits of PRI span sectors. Premiums could be purchased by exporters vulnerable to payment delays from state-owned buyers, lenders financing infrastructure projects in developing markets, or commodity traders navigating sanctions and regulatory swings. PRI stabilises returns in markets where the commercial fundamentals are strong but political institutions are fragile. At the board level, this allows low-probability, high-impact tail risks to be quantified into the known, priced cost of doing business.
This makes PRI not a niche product for frontier markets but an increasingly standard component of cross-border risk management alongside property, credit, and cyber cover.
Yet uptake in Australia has been slow outside the extractive export sector. Some hesitancy stems from a corporate culture over-reliant on contractual protections, international institutions, and regulatory stability to facilitate profit. But those assumptions are being challenged as global markets fragment and the lines between government and business interests blur.
Around 80 per cent of multinationals now expect to adopt some form of geopolitical risk mitigation in the next five years.
A second reason is PRI’s low visibility outside specialist circles. Willis Towers Watson , one of the world’s largest insurance brokers, found that only 27 per cent of companies that experienced a political risk loss in 2025 had appropriate coverage. The other two-thirds used alternate approaches such as investment diversification, operational resilience strategies, and improved crisis management responses. PRI ranked only sixth among commercial solutions.
The significance of PRI extends beyond individual firms. In aggregate, PRI could act as an important handbrake on accelerating economic fragmentation by giving businesses the confidence to remain active in volatile markets they might otherwise abandon. By underwriting risks at scale, commercial ties can be sustained precisely when economic nationalism prompts retreat. This matters because trade, investment, and supply-chain interdependence are stabilising forces between countries engaged in strategic competition. Commercial relations supported by PRI could encourage restraint, facilitate bilateral communication channels, and deter inflammatory strategic manoeuvres – reducing the risks companies seek insurance against.
PRI is not a wholesale antidote to the new international business landscape. It won’t make governments behave predictably, prevent a coup or precipitate a regulatory reversal. But it makes these shocks manageable financial events. With boardrooms already consumed by AI-induced labour concerns, rising capital costs, and persistent cyber threats, PRI should not be overlooked as an avenue to create leadership bandwidth and prevent significant financial losses.
About the author
Matthew Newman
Matthew Newman is the 2025 Michael and Deborah Thawley Scholar in International Security at the Lowy Institute and Center for Strategic and International Studies.
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