Flashpoint Ukraine: what does the war mean for the insurance industry?

For days, the crisis in Ukraine has been the main talking point across all media around the globe. The consequences still can’t be foreseen, meaning great uncertainty for businesses. Here at Aon, we are also still unable to predict the impact on the insurance industry. Our Aon experts can merely provide a cautious assessment of the situation in their particular lines at this given point in time. Here is a brief outline:

Cyber insurance

One topic of discussion in relation to the Ukraine crisis is the accompanying risk of cyber-attacks carried out by allegedly state-sponsored (e.g. Russia or their affiliates) actors or even by loosely coordinated cyber activists groups like "Anonymous". With this in mind, German policyholders are increasingly asking whether their policy will respond to such attacks or whether losses could potentially be excluded through War exclusions.

To date, cyber-attacks have generally occurred in a "grey zone" between peace and conflict and have often been suspected to have been carried out by state sponsored organisations such as the Russian "Fancy Bears" or "Coz. B.ars". Pinning down attribution in a definitive way to a state or government has always been a challenge for insurers, who bear the burden of proving policy exclusions.

The situation in Ukraine is starker, with the on-going active conflict, the traditional concepts of war that will accompany any associated cyber-attacks and the question of attribution may be much easier to answer.

The question of how a cyber policy would respond to a cyber-attack directed against assets in the Ukraine which then spread through networks to other countries, or directly against assets in third party countries, remains a complex one. Careful analysis of the relevant policy language and the facts accompanying any such loss will be required.

Whether a cyber insurer would have legitimate grounds for invoking a war exclusion for cyber-attacks connected to the current Russian/Ukraine situation is highly depended on the circumstances. We expect insurers to assess each loss on its particular facts and the applicable policy wording. The more distance that can be put, in terms of causation, between the cyber-attack and loss in question and the 'live' conflict in Ukraine, then the more difficult it will be for insurers to invoke the War exclusion (e.g., the exclusion is less likely to apply to an isolated Russian cyber-attack directed against German computer systems (with Germany not being a participant in the war) than to a Russian cyber-attack on Ukrainian computer systems, in support of the ongoing military campaign in the country).

Looking forward, it is possible German insurers will seek to adopt an exclusion similar to the new London Market Association (LMA) "War, Cyber War and Cyber Operations" exclusions which were released in November 2021. These new clauses materially reduce or remove cover completely for state or state sponsored cyberattacks and make it easier for insurers to establish attribution. We have already seen insurers reflect the evolving threat landscape in their underwriting methodology.

Trade credit insurance and default cover

It is becoming almost impossible to obtain cover for future supplier credit for customers in Russia and Ukraine. However, a small number of insurers are still willing to cover shipments to Russia, albeit subject to certain legal preconditions (particularly in relation to any sanctions) and payment assurances. It is doubtful whether cover applies to existing insured business. Trade credit insurers normally cover default in the case of insolvency, non-payment or "political risk". On the other hand, exclusions such as "war risks" and "force majeure" may also apply. This should be checked against the actual policy wording in each specific case. Nevertheless, there is still the risk that sanctions may actually end up banning insurers from providing indemnity, even against existing insured default. It is important to clarify this by checking the specific policy wording and sanction regime.

Marine cargo insurance

The risks of war, civil war or warlike events are excluded from standard cargo insurance terms. However, under a war clause, these risks are reinstated for marine and air cargo, while "war on land" remains fundamentally uninsurable. Risks of strike and civil commotion are reinstated via the "political risks" clause. Nevertheless, primary insurers have already begun cancelling the renewal of war, strike and civil commotion coverage for Ukraine, Russia, the Black Sea and the Sea of Azov. The short-term impact of these cancellations is unclear for now. It can be assumed, however, that this will be heightened should the flow of goods resume while political risks remain uninsured. Even today, it is clear that underwriting bans or a highly restrictive underwriting policy will apply to shipments to Russia, Belarus or Ukraine.

The EU has adopted far-reaching sanctions against Russia and named Russian nationals. This immediately triggers the sanctions clause contained in policies. Even if shipments (to Russia, for example, but also Russian investment in shipments beyond national borders) are not subject to future exclusion of political risks, it is possible that insurers may still find themselves unable to cover such shipments (cargo; consignee) due to the terms of the sanctions.