Last year Covid 19 had a major impact on the world's supply chain including Northeast Asia. To a certain degree it still does. Just after the outbreak of Covid 19, A number of airlines canceled flights to South Korea, China and other countries. Korean companies such as Samsung and LG have had to shut down production lines in some of their Korean based plants as well in order to prevent the spread of Covid 19. That in turn, caused a cascading number of economic issues to impact Korea’s economy as well as the world’s supply chain. Much of the world’s high tech based supply chain is based in Northeast Asia ( China, South Korea, Japan, etc.) and the negative effects of the corona virus can be seen everywhere. As a major supplier of memory chips, cell phones, computers, consumer electronics and home appliances, any disruption in Korea’s economy spells trouble for the rest of the world.

Until recently, for companies doing business in South Korea and other areas of Northeast Asia, the most pressing geo-political risk was the threat of war. Seoul is not far from the DMZ and any altercation between North and South Korea would have an immediate impact upon Seoul and its surrounding cities as well as Japan. However, the impact of the current virus, drives home the fact that for companies doing business in South Korea, not only do they have to think of geo-political risk in terms of war, but as health emergencies and pandemics as well. Therefore, a company contemplating potential business projects in Korea must at least on a tactical level consider the implications of geopolitical risks as well as everyday market risks such as financial, legal and operational risks.

Considering recent geo-political events, many companies need to review old risk management policies and procedures, in case updates are needed. Companies are only now beginning to realize they are not prepared to handle the escalating risks caused by the corona virus. Of course, what happens if the Covid 19 pandemic causes the world to lockdown? Many companies are not prepared for that. Some risk management processes that should be reviewed are not being considered as they are viewed as too expensive or impractical. Such is the case with political risk insurance.

Companies face many kinds of risks when engaged in offshore projects; of course geo- political risk is one of them. Witness the current issues in the US. This comes about when a government changes its policy, ideology or even itself which creates instability, disorder, war, strikes, riots, etc. Or of course health risks that effect the region.

What must be done to manage such risks? Political risk insurance comes to mind, but some forms of political risk insurance that are offered by capital –exporting nations ( such as OPIC, etc.) is subject to politically motivated conditions or motivations that may not take the needs of the investor into account. Case in point- OPIC can only operate in countries which have a bilateral investment treaty with the US. If you are a US investor trying to invest in a country which lacks a bilateral investment treaty with the US- you are out of luck when trying to obtain political risk insurance from OPIC. This is true of outer countries which supply similar political risk insurance through export development programs.

For more on political risk see my previous blog: “Managing Political Risk” at Seoullegalriskmgmt.com.

Global Risk Insurance

Insurance, if used properly, is a great tool to shift legal risk or exposure to another entity (i.e., the insurance provider). Many companies fail to adequately consider insurance options, cover risk, or consider appropriate insurance tools that can shift or transfer risk of loss, litigation, or claims. A proper legal risk management program needs to adequately address these issues and to consider the insurability of risk. Insurance, if properly used, can be a great LRM tool. It all starts with a risk assessment such as set forth below.

1 Insurance Considerations: Risk Assessment

Conduct a risk assessment to create a business risk profile to identify factors that have the greatest financial impact, then integrate appropriate risk transfer strategies to
• stabilize insurance costs,
• mitigate extraordinary financial impact,
• ensure cost effective protection against catastrophic losses,
• leverage risk bearing capital, and
• Optimize tax and accounting issues.

Conduct an analysis of current coverage, amounts, deductibles, and excess. Consider custom-designed protection programs by product line (e.g., televisions, automobiles, or microwave ovens).
Evaluate product recall insurance. Is it necessary? If necessary, investigate establishment of a captive insurance company. What about geo-political risk? Consider insurance options.

2 Historical Data

It should be noted that companies use insurance as a risk mitigation or transfer tool and that they manage insurance programs differently than the average consumer. When developing a risk assessment of insurance considerations, data is extremely important when considering a probability or a risk-related event. The collection of relevant data will determine what kind of insurance policies can be obtained, the price, and even the availability of certain insurance programs. How far back a company can go historically to obtain data determines the potential risks a company faces and, therefore, what insurance program and provider is available as well as the costs involved.

When looking at risk insurance programs, the first question that should be asked by the company is whether it has accurate data. Does it have a good risk management information system in place? If not, does its insurance broker or provider have one? Or maybe the insurance broker or provider can help develop one. Accurate data leads to the right risk management strategy and the right insurance program. Lack of data makes it harder to have an accurate picture as to the risks involved and, therefore, harder to develop the appropriate insurance strategy and program. It is necessary to obtain accurate historical data if at all possible.

3 Coverage

The main reason that companies make extensive use of insurance coverage is to diversify and shift risk through use of business-related insurance. Insurance, if properly used and maintained can be a major risk management tool. A major issue facing companies when trying to insure legal risk is the insurability of the risk. In essence, the cost of insuring the risk may be too great to justify the particular form of risk insurance. So when a risk assessment identifies a business risk, not only does the company need to determine if insurance coverage exists to cover the risk, but whether the cost of such insurance justifies its acquisition. Many manufacturing companies will not purchase product recall insurance or similar insurance because of its expense. Some manufacturing companies or organizations will not even purchase credit insurance because of its expense. Therefore, a company or corporation must pay attention to costs and consider methods to reduce the cost of insurance.

Recently, a number of airlines have announced plans to cancel flights to South Korea due to the corona virus outbreak. Korean companies such as Samsung and LG have had to shut down production lines in some of their Korean based plants as well, causing a cascading number of economic issues to impact Korea’s economy as well as the world’s supply chain. Much of the world’s high tech based supply chain is based in Northeast Asia ( China, South Korea, Japan, etc.) and the negative effects of the corona virus can be seen everywhere. As a major supplier of memory chips, cell phones, computers, consumer electronics and home appliances, any disruption in Korea’s economy spells trouble for the rest of the world.

Until recently, for companies doing business in South Korea, the most pressing geo-political risk was the threat of war. Seoul is not far from the DMZ and any altercation between North and South Korea would have an immediate impact upon Seoul and its surrounding cities. However, the impact of the current virus, drives home the fact that for companies doing business in South Korea, not only do they have to think of geo-political risk in terms of war, but as health emergencies and pandemics as well. Therefore, a company contemplating potential business projects in Korea must at least on a tactical level consider the implications of geopolitical risks as well as everyday market risks such as financial, legal and operational risks.

Considering recent geo-political events, many companies should review old risk management policies and procedures, in case updates are needed. Companies are only now beginning to realize they are not prepared to handle the escalating risks caused by the corona virus. Of course, what happens if there really is a true global pandemic? Many companies are not prepared for that. Some risk management processes that should be reviewed are not being considered as they are viewed as too expensive or impractical. Such is the case with political risk insurance.

Companies face many kinds of risks when engaged in offshore projects; of course geo- political risk is one of them. This comes about when a government changes its policy, ideology or even itself which creates instability, disorder, war, strikes, riots, etc. Or of course health risks that effect the region. What must be done to manage such risks? Political risk insurance comes to mind, but some forms of political risk insurance that are offered by capital –exporting nations ( such as OPIC, etc.) is subject to politically motivated conditions or motivations that may not take the needs of the investor into account. Case in point- OPIC can only operate in countries which have a bilateral investment treaty with the US. If you are a US investor trying to invest in a country which lacks a bilateral investment treaty with the US- you are out of luck when trying to obtain political risk insurance from OPIC. This is true of outer countries which supply similar political risk insurance through export development programs.

For more on political risk see my previous blog: “Managing Political Risk” at Seoullegalriskmgmt.com.


The US-China trade dispute as well as the Japan-Korea dispute have to a certain extent caught many companies as well as investors off guard. Considering these political and economic events, many companies should consider reviewing old risk management policies and procedures, if they haven’t already. Geo-political risks are now front and center, whether companies are prepared for such risks or not.

Companies face many kinds of risks when engaged in offshore projects; but geo-political risks can be the most serious if not handled properly. Such risks comes about when a government changes its policy, ideology or even itself which creates instability, disorder, strikes, riots, war, embargoes, etc. What must be done to manage such risks? Political risk insurance comes to mind, but some forms of political risk insurance that are offered by capital –exporting nations ( such as OPIC, etc.) is subject to politically motivated conditions or motivations that may not take the needs of the investor into account. Case in point- OPIC can only operate in countries which have a bilateral investment treaty with the US. If you are a US investor trying to invest in a country which lacks a bilateral investment treaty with the US- you are out of luck when trying to obtain political risk insurance from OPIC. This is true of outer countries which supply similar political risk insurance through export development programs.

The answer for some companies therefore, is to consider obtaining private political risk insurance. Due to the increased use by some companies of political risk insurance from government agencies as well as a lessening of perceived political risk, private political risk insurance offerings have exploded. Several markets provide private political risk insurance including Lloyds of London insurance syndicates as well as groups operating under a reinsurance treaty that are controlled by an underwriter. There are advantages to this.

As private political risk insurers have no political agenda to worry about, there are normally no political pre-requisites for the issuance of insurance. The host country doesn’t need to be poor and the investor can come from any part of the world. Also, the private insurance approval process can be much faster than the approval process of governmental agencies. Of course it should be noted, that unlike governmental agencies, private political risk insurers are in business and therefore the coverage offered by them can be more expensive than compared with their government counterparts.

All in all, political risk insurance should be considered when investing abroad, especially in markets that are uncertain. There are always ways to manage risk, and political risk insurance is just another form of risk management. It should be carefully considered, especially in today’s rapidly changing world.

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