While it’s hard not to be exhilarated by the peaceful revolution in Egypt that ended the 30-year dictatorship of Hosni Mubarak, risk managers and executives at Google might be concerned about the role one of the company’s local employees played in that process. Google regional marketing manager Wael Ghonim spent 12 days blindfolded in a prison run by Egypt’s secret police after he was identified as a key figure using social media to help orchestrate demonstrations. And when Ghonim was released by the secret police, he went straight to Cairo’s Tahrir Square, grabbed a microphone and rallied seemingly demoralized protesters to push on for Mubarak’s resignation.

While Ghonim’s role as a hero of the first social media revolution does not appear to have hurt the giant Internet company’s reputation in Egypt, such activism might not play well for Google elsewhere, especially in authoritarian countries, ranging from China to Zimbabwe.

The fast-moving events that have ousted long-standing dictators in both Tunisia and Egypt are a wake-up call to global companies that they may not have been paying sufficient attention to yet another kind of risk–this time, political.

“I wouldn’t say that it’s a matter of companies having ignored political risk,” says Roger Schwartz, national political lead at Aon Crisis Management. Companies have just been self-insuring themselves on political risk, he adds. “I think that after Tunisia and Egypt, they may be reassessing their exposure and reassessing that approach.”

This is particularly true for American companies, Schwartz says. “As a rule, European companies have been more proactive about insuring against political risk. American firms have tended to take a more roll-of-the-dice attitude of dealing with things when they happen.”

“Whenever you have a significant world event like we’ve just seen, interest increases among business managers in how you can mitigate perils, including political perils,” says Ken Moyle, executive vice president of Coface North America, a division of Coface, the Paris-based global insurer.”Of course, when these things happen, it’s too late to think about insurance in those markets where it’s happening.”

Until recently, companies could have insured against political risk in Tunisia or Egypt at low rates, notes Sam Wilkin, assistant director of global analysis at Oxford Analytica, a U.S.-based risk consultancy. “Now it would be very costly.” He compares the situation to a homeowner who waits until the wind is knocking down trees to try to buy hurricane insurance.

Wilkin warns that political risks don’t go away. They just change in character, and risk managers shouldn’t think that because one type of risk seems to have faded, all political risk is lessened. “In the 1970s, you had a huge wave of expropriations. In the 1980s, it was debt risks,” he says. “In the 1990s, there were a lot of big infrastructure contract defaults and cancellations. In the last decade, it was expropriations again.

“Now, in 2011, it looks like political unrest may be the thing, though it’s too early to say,” Wilkin adds.

Companies with global investments, global markets or global supply chains need to undertake a process of identifying their political risks and deciding how to mitigate them, Wilkin suggests, using a five-step process.

1. Determining your exposure. This process, says Wilkin, can range from the simple, as in creating a listing of property holdings, to complicated, such as looking at supply chains, to very complicated, such as considering reputational risk. “Look at Google,” he says. “They’ll need to examine what the impact on their global operations will be of the role played by their manager in Egypt” in the popular uprising. “People Power and social media add a whole new layer of complexity to the political risk equation,” Wilkin adds.

2. Quantifying the risks. Companies need to estimate the dollar value that a risk poses to their operations before they can decide how to mitigate the risk, or, if they’re buying political coverage, how much to buy.

3. Mitigation. It’s very hard to calculate any probability of political risk, Wilkin and other experts say, so companies should focus instead on steps to mitigate the risks. That could mean deciding to develop a kind of foreign policy for the company, as many oil companies do. It could involve restructuring or relocating operations. (In the ’90s, Enron began putting its power plants on barges, so that if a country was experiencing political problems, it could just tow its property away.) Mitigation might also mean diversifying suppliers in the supply chain.

4. Supplementing with insurance. Companies can add riders to existing property policies or buy political risk policies that protect against things like expropriation or damage from riots, terrorism or political violence. Companies should consult a broker and a lawyer in this process, because the terminology is important. For example, is a unionization campaign a labor problem, or was it politically motivated?

5. Staying alert. Once a company has decided what kinds of mitigation measures to take, it should continue to monitor political risk. The degree of risk, as well as the potential damage to a company’s operations or bottom line, can change dramatically, Wilkin says, and so it’s important to keep reassessing, and adjusting coverage and mitigation measures. It’s also crucial to be aware of how risks interact. For example, he says, if you have major commodity inflation, that can lead to political instability.

A number of global insurers, such as AIG and Coface, provide political coverage. And smaller national insurance companies can offer political risk coverage for domestically domiciled companies. Often, says Aon’s Schwartz, it can pay to shop around for coverage in what is a competitive market. “European and U.K. companies, for instance, are more comfortable insuring against political risk in Eastern Europe and Africa, while American insurers may feel more comfortable insuring against risk in Latin America,” he says.

U.S. companies can also do business with the Overseas Private Investment Corp. (OPIC), a government-run insurer that provides competitively priced coverage for many types of political risks, including expropriation and currency controls.

Evan Freely, global head of Marsh’s political risk and trade credit practice, says while dealing with the government entity can be a bureaucratic headache, having OPIC as a company’s insurer can provide it with added clout in the event of problems like an expropriation or an abrogation of contract on a major infrastructure project, since the full force of the U.S. government stands behind the company.

For more on political risk, see Doing Business in A Volatile World.
Aon’s interactive map of global political risks is here.