Investment in business is something without which it is impossible to imagine a modern financial community. Whether it is a single businessman or the state as a whole, the subject always seeks to expand, develop, cover new territories. At the same time, everyone wants to have guarantees of success and a certain “airbag”. It became investment insurance.
How the system works
Many large investors try not to "put all their eggs in one basket", that is, if possible, invest in various enterprises located in different countries. In the event that one of them found itself in a crisis situation, the business as a whole will still stay afloat, since the losses will be covered by the profit received from another, more successful project. True, this logic of work is available only to wealthy legal entities. In the event that an entrepreneur who wants to invest in a certain business cannot afford to hedge himself by investing no less money in an alternative source of income, he should study the company's investment insurance.
Insurance and policy
What investment insurance in Russia in our time is most in demand? Undoubtedly, the leader’s place has been held for many years by protection against risks associated with a change in the political situation. The structure of the investor state and organizations operating in international money markets act as insurers. As a rule, the country's government has several subsidiaries working in the field of insurance. It is they who carry out insurance of financial investments.
A specialized agency gives the investor certain guarantees if he invests in the business of another state. The state budget allocates a certain amount, from which funds are taken to cover losses in the event of a critical situation.
A company that has undertaken insurance of investment risks, formulates the conditions under which investments are protected, sets the insurance amount and introduces a valid tariff rate. Such an organization necessarily takes into account all operations and studies potential investment objects, evaluating their riskiness, profitability, and prospects. Information about this comes to the potential investor, as well as information about what other persons wished to invest money in this enterprise, which contractors are involved in the project.
Careful selection
Often, an investor can only expect that he will be supported by an insurance agency when an agreement between governments that regulates financial relations between states is already in force. Typically, investment promotion agreements are concluded. These types of agreements are usually bilateral. Russia signed this with America only in 1992, and only after that did Western investors pay attention to Russian entrepreneurship and began to invest in it. In America, the Investment Corporation does this. Her area of expertise is non-profit investment risk.
In addition to the American community, the Hermes Association of German Specialists and the Japanese Department of Commerce also play an important role in the global financial community. A considerable influence on the investment world has the French organization "Coface". The Convention, signed in Seoul in 1985, was approved by MIGA. It provides social investment insurance according to the strategy proposed by the World Bank.Today, MIGA is one of the largest insurance societies on the planet. As holders of shares - more than a hundred countries. The number of shares is determined by how large the state’s capital is in the World Bank.
When more is better
MIGA is not just the largest investment insurance agency, but also the most influential figure in the investment world. The main task of this organization is to support investors and develop business at the international level, as well as provide services that allow in a particular country to improve the conditions for attracting investments.
MIGA works according to the following logic: they provide the investor with a high level of security of funds on the basis of an agreement. Such a paper is signed by the investor and agency representative. It is possible to conclude an agreement when both states (where the investor comes from, where the money is supposed to be directed to) are members of MIGA.
In the event that the investor is not ready to work with the market giant, he may prefer relatively small corporations that also provide insurance for foreign investments. Such are not in all states, but, for example, in America there is a choice.
What are we insuring against?
If it is necessary to insure foreign investment from political risks, the following are the objects:
- securities, rights;
- investments;
- property rights;
- property rights;
- loans.
When an agreement is formed, the situation of the country, both political and financial, as well as the state’s capabilities and its economic level, GDP is preliminarily analyzed. The insurance agency takes into account how large the external debt is, what is its structure and how correctly the government pays the next amounts. For insurance, inflation is important, objects and subjects of investment, the amounts that are supposed to be invested in another country and even the geographical location of the object for the development of which the money will be directed. In a word, an investment insurance contract contains a complete and comprehensive understanding of both the object and the conditions.
How it works
Features of investment insurance are determined by the size of the program and the appropriateness of the project as such. In some cases, the question is whether insurance is possible as such. Moreover, the previously mentioned factors will be the basis for determining what a particular investor is insured against. It can be:
- rationalization of enterprises in which investors from abroad took part;
- adoption of laws that do not allow working as described in the previously adopted program;
- adoption of laws that do not allow the use of finance, profitability for investments and transfers to the state from which the investor originates;
- deprivation of the investment object of the right to land;
- enactment of laws allowing confiscation of enterprises in which investments were made;
- adoption of laws, due to which investors find themselves in a disadvantaged state relative to their initial position;
- the introduction of legal norms that limit the ability of an investor to manage enterprises in which money was invested;
- war, unrest, civil strife associated with damage to the investor.
In most cases, investment (finance) insurance is carried out by programs lasting from 12 years to two decades. Amounts that cover such agreements range from 50 million to 150 (in US dollars). At the same time, more than 90% of the total investment cannot be covered in this way. Tariffs range from 0.3 to three percent.
Bankruptcy Insurance
This program is considered mandatory in a number of countries. In Russia, its logic is similar to the system by which deposits are insured with banks. Work in this area is carried out either by government agencies or close to them.
In America, investors are protected by FDIC and SIPC. In the first case, deposits with a total value of not more than 250 thousand can be protected. All this amount will be fully returned to the investor if the enterprise in which the money was invested went bankrupt. But interest is not taken into account, so you can’t count on their return. In Russia, the DIA company is engaged in similar work. You can turn to her for a deposit insurance of up to 1.4 million.
SIPC provides investment insurance, preventing the bankruptcy of the broker. Insurance in America is required for all brokers, dealers. In the event of bankruptcy, clients can expect a financial return of up to half a million dollars in securities, and in cash - up to a quarter of a million. But investment risks under such a program are not insured.
Is a broker insured?
In order not to take the extra risk, it makes sense to immediately clarify whether the broker is insured, and only after that work with him through finances, investing in one or another entrepreneurial activity. In the case when it is supposed to invest in America, everything is quite simple - just check the presence of a legal entity in the list of SIPC clients. If he works with this system, there is no doubt in the reliability and authenticity of the licenses.
And what does investment insurance in Russia look like? As follows from the above, there is no SIPC analogue, which complicates the situation somewhat, although it is not a cause for panic. So far, the Russian investment market is developing in such a way that no analogue of this system is required, since there are certain differences. In America, brokers, for the most part, are banks with borrowed capital, which is why risks increase. In Russia, brokers work according to a different scheme - they receive a percentage for providing interested parties with access to the financial market. If there is a bank, then this is a separate institution of the broker, which is not the main one in its investment detail. And the broker's work is practically not associated with risks, since he does not take loans.
Insurance as a guarantee of the country's attractiveness
Russia is now known at the world level as a state, investing in which has a high degree of risk. However, the recently introduced system that provides reliable investment insurance allows attracting more and more money holders. At the same time, it is clear that the current insurance methodology is still not sufficiently developed, and only its development can provide in the future a decent level of interest from investors. So far, laws do not seek to adapt to the requirements of the economy, although some experts make bold predictions about changes in the foreseeable future.
Private foreign investment is important, but it will only be when there is effective insurance. While there is no such mechanism, one cannot attract impressive money and improve the climate in terms of investments. And this requires the creation of new legal forms and guarantees from the state.
Investment insurance in the future should be supported by legal standards that would ensure the effectiveness of regulation of the investment process in the smallest details. Only then, an investor who is able to assess in advance what losses he may incur in the worst scenario will begin to make a final decision. Such transparency motivates to build up cooperation both at the interstate level and between specific entrepreneurs.
Prospects and Techniques
In order for investment to develop in our country, even at the regional level, measures should be taken to guarantee investors protection against possible negative conditions.It is worth remembering that in relation to Russia, there is a stereotype in the public mind: there are high risks associated with political repression and the instability of the situation in society. This means that only then entrepreneurs from other states who have money will want to invest their money when they are sure that they are safe from such troubles. The fact that a new insurance system is needed has long been said by increasingly more or less large players in the money market.
Now the state does not have a single national agency that would insure funds received from abroad, and it is precisely because of this that investment insurance becomes such a problem. Of course, since 2008 Vnesheconombank has received certain powers in this area, but this is not enough. Negotiations are underway on empowering the DIA, but so far there are no real results. According to expert opinion, one should not count on attracting a large amount of investment until this issue can be finally resolved.
Custom approach
Recently, more and more economists of the international level have been proposing to try a non-standard approach to political risks, which involves updating their classification to reflect changes in the economic, political, and social life of society. If five subgroups were previously distinguished, then according to the latest theories, this list should be supplemented with the following risks:
- The state refuses to fulfill the obligations undertaken in the field of contract support for the investor and the government. This should also include a situation where the provisions of the contract are violated by the government and the investor is forced to negotiate for amendments. It is also necessary to take into account the likelihood that a prosecution will begin against the investor, which becomes the reason for termination of existing agreements. In such a situation, the state may refuse to pay debt on previously taken obligations.
- The probability of losses due to the revocation of the license that the investor received from the special authority of the state to which the money was directed. Such a situation often causes a halt in the activities of the enterprise in which the investor invested. In addition, this leads to a violation of applicable laws. The state may try to create a situation in which the investor will be infringed by the laws of the host country in their exclusive rights.
These conditions should be included in insurance contracts, whose task is to ensure the safety of investments. It is important that they be reflected in regulatory and legal acts in force in Russia. Without this, one cannot talk about the possibility of significant foreign investment in the future.