Is it legal, in the US, to sell business insurance which is triggered by a political loss of a pro-business party?

Question

Regardless of whether it is right or wrong, Republicans are considered to be the pro-business party. It doesn't really matter, for the purposes of this question, whether that's a correct assumption. We can denominate hypothetical parties B and L (to stand in for pro-"business" and pro-"labor").

Assuming that a state, governed by B, adopts a policy which attracts businesses from other states, but there is a close gubernatorial election (but B wins over L by a razor-thin margin), it becomes risky for a business to make long-term commitments in such a state. The next election can reverse the policy.

Is there anything which legally prevents an insurance company from explicitly writing a policy that would pay out a certain sum of money to any business in the state if, in the next election, L wins? I do realize that there are other markers which can be used to stand in for such a direct triggering event, but my question is not about insurance. It's about the law. I can't think of anything which would preclude such an explicit triggering event in an insurance policy (other than maybe prudence or ethics).

Answer 1

Political risk insurance exists, but not in the format hypothesized. What the question is contemplating is more like a gambling bet, or a futures contract (which is a type of "derivative" contract), than insurance.

What constitutes an insurable risk of harm to an insurable interest is mostly a matter of common law although there are some state statutes on point in the U.S. which is the level of federalism at which insurance is regulated.

Basically, you can only insure against a loss to an "insurable interest" caused by an insurable risk. In practice, this means that insurance has to be linked to an individualized loss of an individual or business that is clearly and directly caused by a covered occurrence.

A change in governing political party itself, doesn't give rise to such a loss. The mere fact that a party is elected or that the people elected take an oath of office, doesn't itself change any laws or regulations. It just puts in place people who might do such things in the future.

Political risk insurance, when it exists, insures against the nationalization of one's business at a loss, or against the industry that one is engaged in becoming illegal, at a loss. It is the specific action taken by the newly elected regime towards the particular insured firm or individual, and not the actual new regime itself, that gives rise to a loss to an insurable interest in the case of political risk insurance.

For example, you might be able to buy political risk insurance against the possibility that your marijuana business which is legal under state law but not federal law, will be seized in a civil forfeiture or shut down by a change in the practical effect of the relevant state law.

If you are worried that your company's stock will decline in value due to an election result, the available financial instrument would be to short sell your company's stock, hedging against losses arising from a drop in stock price below a certain dollar value by a certain date for any reason.

If your company is not publicly held, the risk of a decline in business due to an election result is not something that can be insured against.