International expansion exposes companies to political risks–France

But this trend has put emphasis onto a whole set of threats that risk managers have been called to deal with, French participants in this year’s Risk Frontiers survey said. “The development of companies necessarily implies international expansion,” pointed out Gilbert Canameras, President of AMRAE. “The mathematics are clear. If a company works in a market where growth is zero, it cannot grow. So it has no choice but to export to foreign markets and devise a risk management policy that is up to the challenge.” French companies are used to relying on the support of the state to pursue their adventures abroad, which has always been good news from a risk management point of view.hideBut this situation is about to change. “There have been for a long while policies to cover exports via public entities like Coface, where efforts are made to support the progression of companies in foreign markets,” Mr Canameras said. “For instance, if mid-size companies spend money prospecting a country and it comes to nothing, Coface can reimburse them. But now states have much less means to promote policies that are as aggressive as that.” This means that firms will have to rely increasingly on private markets to transfer their political risks. “The private market for political insurance has developed considerably of late,” Mr Canameras pointed out. “But in my view it remains expensive in terms of premiums and is much more geared towards large groups, rather than mid-sized ones.” On the other hand, AMRAE’s treasurer Yvon Colleu believes that the insurance market has reacted well to recent events that have put political risks on the top of the agenda of risk managers of late, like the removal of autocratic regimes in north Africa. “The insurance market was affected by recent crises, including the Arab Spring, but some insurers are already going back to certain countries they had retreated from of late,” he said. “Insurers are making efforts to understand those risks and come up with solutions,” added Mr Colleu. He added: “Multilateral agencies also play an important role, alongside the insurance market, in providing coverage against political risks. Of course, as with any insurance product, there are exclusions and limits to what you can place in the insurance market which prevent you from transferring the totality of the risk.” Mr Colleu said that instability in markets where a company operates constitutes the main concern for a company such as Bouygues SA, which operates in different sectors and in several countries. “Of course we can be affected by problems in our supply chain, but the situation in the countries where we operate could be a bigger concern for us,” he said. “For example, we have construction projects in very sensitive regions, where our company is exposed to political risks and to property damage risks too.” And political instability has another undesired effect, which is the perspective of a sudden change of rules affecting the activities of the company in a foreign market. AMRAE board member François Malan highlighted one example from a possible outcome of the changes that north African countries are experiencing at the moment. “For instance, in north Africa, rules are similar to the civil code we have in France. But if some countries adopt the Sharia laws, they would become completely different,” he said, adding that the insurance market needs to be ready to cope with such challenges if they arise. “Political insurance coverages have to be very well designed to cover not only the risk of nationalisation, but also other topics that would arise, and insurers must improve their policies in this sense,” said Mr Malan.

International expansion exposes companies to political risks–France

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