License cancellation (import or export)
A political risk trigger whereby a state withdraws or refuses the import or export authorization on which a contract depends, making it impossible to perform through no fault of the parties.
License cancellation refers to the annulment, non-renewal or refusal by a public authority of the administrative authorization needed to import or export goods. It can come from the exporter's country, which restricts the outflow of certain goods for security, sanctions or industrial policy reasons, or from the buyer's country, which closes its market. In both cases the contract becomes impossible to perform without any party being at fault, and the loss is purely political. The cover appears in contract frustration and export credit policies. It indemnifies the exporter for costs incurred on a contract it can no longer deliver, and the importer, or its lender, for goods paid for that can no longer be shipped. Underwriting turns on a delicate point: distinguishing a discretionary political decision, which is covered, from a refusal based on the insured's breach of a known rule, which is not. Recent industrial policies that ban exports of raw commodities to force local processing have made this risk topical.
Indonesia banned exports of raw nickel ore from January 1, 2020, bringing forward by two years a deadline announced for 2022. Traders and foreign buyers holding supply contracts saw their deliveries become impossible within months, a textbook license cancellation decided for industrial policy reasons.
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