Looking back on the global political and economic events of thelast decade, the pace of change has increased tenfold. Now thequestion becomes, what will be the next event of globalproportion?

Today's risk-management professionals need to hedge againstevents such as floods in Australia; earthquakes in New Zealand; the bankruptcy of General Motors,Enron, Lehman Brothers; unpredictable government actions in Mexico,Brazil, and China—these lists go on and on without limit.

These occurrences perpetuate claims, sometimes of catastrophicnature. While insurance premiums, which are a pure expense, can beviewed as an investment, I recommend that risk-managementprofessionals view them as an educated hedge against changes thatat some point in time will adversely affect theirorganizations.

It behooves any organization planning to expand into new,unchartered territories or that is already transacting businessabroad to seek a tangible safeguard against ongoing cash-flowvolatility. This safeguard needs to be above and beyond what itsrisk-mitigation professionals are able to control.

In the current global economy, consumer spending andunemployment in the U.S. and many other developed nations haveexhibited signs of improvement in the first half of 2011. Butdespite quick actions taken by the U.S. government, providingtemporary stability to boost the world's financial house, ourrecovery remains uncertain.

MITIGATING POLITICAL RISK

Given today's uncertainties, where does that leave thoseemployed to mitigate political and economic risk for companiesconducting or planning to conduct business on a global scale?

Today's risk managers and financial executives often findthemselves in unfamiliar territory—for example, expanding theirfootprint in Russia, or perhaps conducting trade with new customersin China without requiring a letter of credit (to becompetitive).

Despite the risks of manufacturing, investing and selling goodsabroad, the appetite for covering these risks remains strong amongmost carriers. But do not run to your insurance broker asking forcoverage for your production facility in Yemen, because let's faceit, that house is already on fire.

A risk manager, however, could find coverage attractively pricedfor a global risk portfolio for assets in places like Mexico,Brazil, China, Russia and India, among many other emerging-marketcountries.

Further, investment and credit-insurance premium rates are atdecade lows, due to increased market capacity and recently reducedclaim volumes.

Trade credit insurance protects an organization from cash-flowdisruption due to the insolvency or protracted default (nonpayment)of a key customer. Coverage includes losses caused by politicalrisk such as currency inconvertibility.

Political-risk insurance protects companies as they expandoperations into both developed markets as well as emergingeconomies. It also protects a firm's assets, contracts and tradeflow against financial losses caused by a single event or series ofevents that are political in nature.

The key to purchasing global coverage is to do so before youhear the country—where your organization's key assets arelocated—being discussed in the globalized national newsmedia.