Purpose and scope

The concept of insuring foreign private investment against the political risks of expropriation, inconvertibility and war, revolution and insurrection has emerged as an answer to many relatively new problems. In the wake of the Charter of Economic Rights and Duties of States, there was, to a large extent, an increasing departure from the traditional standards of international law. The Charter demonstrated a militant economic nationalism by the developing countries in asserting their sovereign right to confine the whole issue of foreign investments exclusively within their national laws. This reflected the sense of insecurity over foreign investments, and a lack of confidence in existing protection, whether economic or legal. On the other hand there is an urgent need for flow of foreign capital across international boundaries to the developing countries which in recent years, as we mentioned before (see above, pp. 5–7), have adopted liberal policies attracting foreign investments.

For these reasons, the insurance of private investment abroad has become one of the principal contemporary instruments and techniques devised in response to the new challenge: how to provide adequate protection for investments in foreign countries. Furthermore, insurance offers some sort of protection to investors against what is often their principal worry: the political stability of the investee country.

The concept of investment insurance has now been recognized as an effective device for improving the investment climate. In international law, it was not extensively treated in the past legal literature, albeit several schemes have been established in recent years.