Insuring international investment

A number of capital-exporting countries, including almost all OECD countries, as well as India and the Republic of Korea, have set up national investment insurance schemes. They offer insurance of new investments against noncommercial risks abroad to nationals or residents of the insuring country. Eligible investments have generally included equity and quasi-equity; the definition of investments extends increasingly to non-equity forms of international business transactions such as service and management contracts and profit or production-sharing arrangements. In general, coverage is available for three types of political risk: expropriation, currency incovertibility, and war. Periods of insurance tend to range between fifteen and twenty years. While a few schemes offer separate coverage for individual types of political risks' most of them provide only for blanket coverage of all risks at a flat premium.

As a rule, only investments flowing into developing countries are eligible. Whereas only one scheme explicitly requires the existence of a bilateral agreement with the host country as a precondition for insuring a project' many schemes strive to safeguard their exposure through general bilateral investment protection agreements between home and host countries.

Assistance to the development of the host country by promoting investments, promotion of the home country's exports or its access to raw materials, as well as promotion of mutually advantageous economic relations, are basic objectives of the national schemes. While some schemes concentrate on one or more of these targets, others strive, with varying priorities, to integrate all of them. All schemes operate under the auspices of their respective governments. Most are required, or at least expected, to operate on a self-sustaining financial basis.

Since the early 1970s some private insurance underwriters have started to issue policies to cover noncommercial risks for firms operating in developing countries.

The capacity of private insurers has increased significantly. The private insurers were successful mainly by making their programmes complementary to national insurance schemes. Despite some disadvantages of private insurance - higher premiums (up to 5 percent) and shorter period of coverage (one to three years) -- it provided coverage that could not be obtained under the national schemes because of their restrictions (for example' host-country ceiling and limitation to new investments by nationals).

To overcome the weaknesses of national and private insurance programmes for noncommercial risk, international or multilateral investment insurance systems have been considered repeatedly since the early 1960s. The Inter-Arab Investment Guarantee Corporation was established to insure investment from Arab member states in other Arab member states.

Counter Claim:
National investment insurance may be subject to a number of constraints such as: inability to achieve a viable spread of risk, especially by small home countries; country or project ceiling, or both; Failure of developmentally valuable investments to obtain insurance as a result of home-country-related policy considerations; inability to accord coverage to all members of international consortia on equal terms and conditions; unavailability of national insurance to (potential) investors from some capital-exporting countries, in particular, capital surplus OPEC countries, which do not operate national schemes.
Commerce Investment
Type Classification:
D: Detailed strategies