The objective of this document is to explain, based on the documentation that is found not only in the supporting text for this curriculum but, also the Political Risk Insurance Center web-site; The Ten Critical Steps for Risk Managers. The ten critical steps as compiled, explained and assessed from our documentation expresses a guide for export professionals in purchasing political risk insurance. The subject of this document with the focus on the ten critical steps, will be the country known as the Philippines, a Republic that was formed on July 4, 1946.
Selection of a Broker/Underwriter
The broker is amongst the first individuals that will be contacted. Therefore, this first step is amongst the most important. Just like any salesperson, it is possible to come in contact with brokers who can speak with an informed tongue in regards to political risk (Cook, 2004). However, the challenge is finding the one who can perform in the limited insurance market. The Philippines since its inception and formation has always been in-volved in some type of controversy both political and militarily within its own borders. The broker who would be chosen should understand the historical significance and the volatile political climate that exists within this country.
Service requirements composes an analysis of what services the exporter re-quires. The filing of applications, financing, political risk intelligence compiled from the broker, loss control and claims handling, contract and expose review, and the communica-tion of coverage should be analyzed and examined thoroughly. This step does not only take place in regards to the Philippines but, it also takes place in regards to the United States based export and import policies that are always in play. The identification of the service requirements is needed on both shores to ensure a smooth transition and transference of products and goods.
Our broker should find a continued involvement in the combining of political risk exposures in an attempt to combine them under a single policy. The objective when com-bining risks should be to maximize the ability to obtain favorable terms and conditions and reducing the premiums that will be paid (Cook, 2004) Since the objective and the goal of any firm is cost reduction, it would work to the firm’s benefit which in turn also increases the communication of coverage. Doing business in the Philippines will and can involve risk that could inevitably result in the loss of profit and or merchandise.
Communication & Political Risk Intelligence
Communication, second to the broker in my opinion is one of the most important aspects of the critical ten steps. It is recommended that seminars being held to educate and inform the employees in regards to the Filipino environment. The facilitating of formal communication systems, which update weekly status reports, would also be another com-ponent that is sorely needed. Lastly, having a point of contact who is familiar with operat-ing plan in the event that logistical problems arise should also be in place to communicate directly with the firm’s personnel who would be counted on to provide information and support. Within the Filipino environment, the political environment itself can shift and change rather quickly, therefore Political Risk Intelligence is not only necessary, but is re-quired.
The elected official who holds the office of president can only by constitutional measure be elected once. This makes it very difficult for any elected official to implement change quickly that would affect the average citizen. Therefore the ability to communicate that a political environment has shifted quickly is crucial. The attempt to overthrow the government in the act of a coup has been not only demonstrated but it has been attempted within the borders of the Philippines. It is also to be expected as well is a requirement that the broker always provide up to date information in regards to political risk intelligence.
Just as communication is detrimental, the reviewing of a contract is equally as important. The contract review may involve legal counsel who has the skill and necessary tool set to understand contracts term of sales and payment, and all other documentation that could expose the firm and ensure that the optimal coverage has been purchased. With-in the confines of political risk, ensuring that the firm has not been exposed in such a way that could result in the loss of profit, the inability to export or import or the inability to ob-tain payment for products imported or exported.
Rates, terms, conditions
Export professionals who wish to do business in the Philippines should be well-versed in regards to deductibles and coinsurance, if there is a waiting period, rescheduling, warranties and exclusions, method of reporting exposures, coverage for business interrup-tion and protection of profits, currency fluctuations, currency for claims payments and cost premiums. Just like the contract review process, rates, terms and conditions should all be disclosed in advance. This provides a firm with the ability to make a sound decision in the choosing of whether to pursue an import exports opportunity within the Philippines. All of these factors directly impact the profitability of the firm as these are all factors that the firm can not directly change at any given time. (Carment, 2002) “The Philippine economy was not affected as badly by the Asian financial crisis as other Asian countries; however, efforts to revive the economy have taken a backseat to security issue since September 11.” security concerns can always affect rates, terms and conditions.
Political instability will automatically and inevitably affect the currency exchange rate. In addition to since most political risk coverage excludes export credit, you would want export credit insurance to protect against nonpayment. From the standpoint of the Philippines, facing the United States, the Philippines itself has always had a fairly decent relationship with the United States, which has had a military presence in the region for quite some time, even though there is an growing opposition for the presence of the US Military (Greenspan, 2010).
Loss Control & Claim Procedures
Loss control and claim procedures run hand-in-hand, since before loss, a policy should already be in place that address the necessary personnel and the handling of claims. In addition to and loss control once it seek contractually favorable treatment from the na-tion that you are exporting products to. In regards to the Philippines, since there is already a favorable relationship between the two governments, this is not going to be as much of a problem. However, a firm always runs the risk of losing freight in addition to losing the co-operation of the host government or country in regards to recovering a loss and filing claims with the necessary parties. It is recommended that the personnel of the host nation develop a relationship with the local financing institutions and local officials to keep the firm in good standing to help ensure a much more favorable outcome in the event of a loss where a claim would need to be filed.
Each of the steps I find are necessary when attempting to develop or enhance an export/import business and/or relationship with the Philippines. From hiring the correct broker, identifying service requirements, facilitating communication, the reviewing of con-tracts and the combining of insurance policies; all of the steps that have been issued are still necessary even when taking into account that we are doing with a currently US friend-ly country. Due to the local infighting between a growing Christian population and a native Muslim population I strongly recommend that political risk insurance be acquired before attempting an import/export business in the Philippines.
Carment, D. (2002). A Risk Assessment Brief. Retrieved from http://www4.carleton.ca/cifp/app/serve.php/1080.pdf Greenspan, J. (2010, August 8). ‘u.s. out of the philippines!’. Retrieved from http://www.workers.org/2010/world/philippines_0812/ Living in The Philippines (2011, March 27). Living in the philippines. Retrieved from http://cebuexperience.com/living-in-the-philippines/filipino-culture/filipino-culture-2/ Cook, T. (2004). Risk management in international business. In T. Cook (Ed.), Mastering Import & Export Management (pp. 61-63). Retrieved from http://books.google.com/books?id=eZAJy7kTAmAC&pg=PA61&lpg=PA61&dq=Ten Critical Steps for Risk Managers&source=bl&ots=nIwv7hyMTR&sig=IzDP-IbLlf8t2kozoqiiOUHcV4U&hl=en&sa=X&ei=qkMZT__-E6y70AGw14GdCw&ved=0CDYQ6AEwAA
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