War in Ukraine: the impact on the insurance industry
Whilst most are aware of the lengthy list of sanctions brought by the US, UK, and EU against Russia as part of action arising from Russia’s tragic invasion of Ukraine in February 2022, the impact on Ukraine itself and the insurance market there is somewhat less understood. To provide clarity, Griffiths & Armour Partner and Group Director – General Division, Paul Sapiro discusses the ongoing insurance crisis in Ukraine.
The ongoing conflict in Ukraine has had a devastating geopolitical, legal and economic impact on Ukraine and across the world. Although there have been no changes to insurance law in Ukraine and no restrictions placed on outside insurers covering risks in the country, the imposition of Martial law on 24 February 2022 coincided with a raft of measures brought in by the National Bank of Ukraine.
Decrease in the Number of Insurers
As a result of the ongoing conflict, the insurance market in Ukraine, which has annual premiums of c€550M, has seen the number of insurers trading in the country fall from a high of 209 in 2021 to 115 by June 2023. The war has led to staff shortages, branch closures, and relocation of employees to other countries whilst others have been mobilised.
The ability of Ukrainian insurance companies to obtain secure reinsurance coverage has been influenced by the geopolitical situation and sanctions. The collapse of the reinsurance market access for Ukraine in 2022 due to a lack of interest from Western insurers has led to:
- Limited local capacity
- Shortened Business Interruption indemnity periods
- Machinery Breakdown and Loss of Profit cover have been almost impossible to obtain
- Product Liability cover is being limited or restricted
- There is only one insurer available for Cyber and Directors’ and Officers’ Liability risks
- It has not been possible to obtain Terrorism or Strike, Riot or Civil Commotion insurance since 1 January 2023
- Almost all international programmes in Ukraine have been cancelled or paired back and this has placed further strain on the local provision of cover in increasingly difficult circumstances
Generally speaking, in regions of the country with active war activities, no insurers are willing to provide quotations for coverage.
The level of damage that has been seen across parts of the country will also make executing insurance repairs a long and complicated process, especially as ongoing attacks and air strikes make some works impossible or too dangerous to undertake. Claim settlements are also slow due to the precarious staffing situation at insurers as well as the broader impaired infrastructure.
Underinsurance remains a problem, especially as Ukraine’s inflation rate remains above 10% and it is difficult to reliably contact insurers to adjust the current values appropriately.
As with most parts of the world, the overwhelming majority of insurance policies in Ukraine contain a War exclusion that is being strictly applied by all insurers.
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