Policyholder Pulse
In today’s volatile global economy, companies are learning the hard way that political shocks—whether through trade sanctions, military conflict or abrupt regulatory change—can wreak havoc on supply chains. And worse, many are discovering that their existing insurance coverage may not offer relief.
From soaring oil prices due to Middle East tensions to re-energized trade wars and border disruptions, the 2025 global risk environment has changed dramatically. The ripple effects are evident across virtually every industry—and the insurance market is struggling to keep pace.
Below, we explore what these developments mean for policyholders, the growing importance of Political Risk and Supply Chain insurance, and how businesses can prepare ahead of time and respond when the shocks happen and insurance coverage is needed.
Political Instability Meets Supply Chain Fragility
Recent events in the Middle East offer a stark reminder of how quickly geopolitics can upend commercial stability. On June 13, 2025, global markets reacted sharply to reports of Israeli military operations inside Iran, driving Brent crude prices up over 5% in a single day. Airlines, shipping carriers and commodity producers were immediately affected, with the Strait of Hormuz—a key global chokepoint—being threatened by escalation in the region. From upstream raw material delays to downstream distribution collapses, companies experienced instant—and costly—interruptions.
Meanwhile, back in the U.S., tariff-heavy trade policies have returned. The Trump administration’s early-2025 reintroduction of Chinese and Mexican import levies has forced businesses to reconfigure sourcing strategies under pressure.
Combined, these developments have led to operational gridlock. In its 2025 Global Risk Report, J.S. Held analyzed how chokepoint exposure, policy unpredictability and conflict-prone trade routes are critical vulnerabilities in today’s geopolitical environment. These vulnerabilities cost organizations an estimated $184 billion annually. But what risk transfer mechanisms might be available to help businesses manage these vulnerabilities?
Political Risk Insurance: A Tool for Cross-Border Uncertainty
Political Risk Insurance (PRI) is a first-party insurance coverage that was once reserved for multinational investors in unstable regions. Today, it is fast becoming a necessary consideration for any business with global operations. PRI typically provides protection against:
- Expropriation or nationalization
- Currency inconvertibility
- Contract frustration by government action
- Political violence and terrorism
- Embargoes, trade sanctions and forced abandonment
For example, recently AerCap, the world’s biggest commercial aircraft owner, was awarded more than $1 billion by the High Court in London after it ruled that insurers had to cover losses under a “war risks” policy for planes stranded in Russia following its invasion of Ukraine. But PRI policies are bespoke and require careful negotiation to be effective. For example, coverage for economic sanctions or tariffs may not be standard and must be explicitly requested. Similarly, geographic restrictions or vague policy wording may limit recoverability when supply chains are indirectly impacted. Although there is a dearth of judicial decisions on political risk insurance disputes (as most are subject to confidential arbitration), some public agencies do report how disputed claims were resolved.
Supply Chain Insurance (SCI): Bridging the Gaps in Traditional BI Policies
Many first-party property policies provide Contingent Business Interruption (CBI) or Contingent Extra Expense (CEE) coverage—often for additional premium. However, this protection is often subject to critical limitations:
- The affected supplier or customer may need to be a “direct” or scheduled dependent location or supplier.
- Coverage often requires “physical damage” at the supplier’s premises.
- “Delay” and “logistical breakdowns” not caused by insured perils are frequently excluded.
This is where Supply Chain Insurance picks up. SCI is a broader form of contingent coverage designed to protect against the loss of income or additional costs resulting from disruptions to a policyholder’s supply chain not necessarily caused by physical loss or damage—even when those disruptions originate at third-party locations of suppliers and customers (i.e., natural disasters at supplier locations, political unrest in third-party manufacturing countries, infrastructure failures such as port closures or rail disruptions, and labor unrest or cyberattacks on upstream suppliers).
For example, if a fire damages most of your manufacturing plant and you cannot produce anything during renovations, you would look to the standard language of your property damage/business interruption insurance for coverage. Whereas with supply chain insurance you can stay protected in the event of delays, natural disasters, transportation failures, production disruptions, strikes and other external events that create a loss for your business where the supply chain itself experiences physical loss or damage (e.g., a customer or supplier experiences physical loss or damage or a trade route does). If your company is concerned about any losses resulting from these types of disruptions, it is imperative to investigate the availability of specialized broad supply chain insurance in addition to CBI or CEE coverage.
Other Types of Coverage
Other types of coverage sometimes contain provisions that address categories of political risk. For example, while marine and aviation policies typically exclude a broad range of so-called “war risks,” which often include actions falling short of outright “war” between hostile powers, policyholders are usually offered gap-filling war risks coverage for additional premium. Courts have made substantial awards for war risk losses under such endorsements. Similar coverage is also available for cyber intrusions, which may also impact supply chains. To protect critical supply chains, it is prudent to consider purchasing such war risk endorsements for marine cargo and similar loss-in-transit coverages.
What to Do to Preserve Your SCI and PRI Coverage: Key Legal Considerations
As supply chain and political risk claims increase, insurers are deploying narrow interpretations and technical denials. Common defenses include: the absence of direct physical loss or damage, exclusions for governmental acts, or arguments that the impacted supplier or customer is not a covered dependent location.
Policyholders should be aware of the following legal tools:
- Claim documentation: Preserve correspondence, invoices, freight logs and procurement notices.
- Policy audits: Review endorsements, schedules and contingent coverage clauses.
- Bad faith remedies: If an insurer delays payment, denies coverage without adequate investigation or misrepresents policy terms, a claim for bad faith may be warranted.
Of course, the best offense is a good defense and the best way to avoid a claim denial is to engage counsel during program placement to help structure policy enhancements that will improve the chances of recoverability, such as:
- broadening the definition of “dependent” or “covered” property;
- removing “direct physical loss” requirements;
- adding “civil authority,” “inaccessibility” or “logistics disruption” endorsements; and
- negotiating tailored Political Risk Insurance terms for foreign operations.
Protecting the Future: Recommendations for Policyholders
To reduce exposure and increase the likelihood of successful recovery in future disruptions, businesses should:
- Review and update policy language annually. Engage experienced coverage counsel during renewal to negotiate tailored endorsements.
- Expand definitions of dependent or covered property. Avoid narrow geographic or contractual limitations.
- Integrate political risk and supply chain reviews into enterprise risk strategy. Coordinate between legal, procurement, and risk management teams.
- Understand your recovery rights. Don’t accept insurer denials at face value—most disputes turn on nuanced interpretations.
Conclusion: Strategic Insurance Planning Is Not Optional
Today’s global business climate is defined by rapid, unpredictable disruption. A single embargo, port closure, regulatory sanction or cross-border conflict can trigger a chain reaction—crippling revenue and straining operations. And while insurance can provide a backstop, only the right policy language—and strong legal support—can ensure it performs when it counts.
Policyholders need more than just standard coverage. The right legal counsel will supplement the right insurance broker and together that team can anticipate tomorrow’s threats to negotiate insurance programs designed to protect against 21st-century risks. Pillsbury can assist clients in both the policy drafting and enforcement sides of complex supply chain disputes involving insurer pushback, coverage gaps and global claims coordination. Experienced coverage counsel can provide valuable assistance in this endeavor.
Policyholder Pulse will continue tracking developments in this space because when it comes to managing enterprise risk in an uncertain world, innovation isn’t optional—it’s essential.
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