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War in Ukraine

The war in Ukraine is changing the risk landscape in the German insurance market

Russia’s invasion of Ukraine on 24 February 2022 has dramatically changed the lives of the Ukrainian people. At the same time, the geopolitical and security-political landscape in Europe and across the globe has changed to an extent not seen since 1989. This has enormous implications for corporate risk protection.

Market situation

The consequences of the war in Ukraine for companies operating both within Germany as well as globally are huge.

Company D&Os are having to reassess economic and political risks on a daily basis. Operational decisions, some with far-reaching implications, are being made against this backdrop.

The war in Ukraine is changing traditional instruments of risk assessment and risk transfer. Whether and to what extent risks are insurable depends on a range of factors. These include sanctions, the nature and location of the risk, the structure of international insurance programmes, the scope and interpretation of insurance T&Cs and the local presence of companies, insurers and brokers, including the permission and de facto ability to handle local claims. This list alone suggests that it is almost impossible to make general statements about the assessment and insurability of corporate risks.

From a broker’s point of view, it is therefore important that the various risk aspects of a company be assessed as a whole. Solutions then have to be designed individually by considering individual lines separately and using sound data – but especially by including local insurance protection.

Outlook

The impact of the war in Ukraine on German companies will always depend on the sector, structure and international nature of their business operations. Sanctions may mean, for example, that the supply to Russia or Belarus of specific items that can be used both for civilian and military applications (“dual-use” goods) may be prohibited due to existing sanctions. A number of companies have suspended their business operations in Russia voluntarily, thereby having gone even further than the governments that are applying sanctions. Other companies are continuing their business operations in Russia and/or Ukraine, due, for example, to ongoing contractual obligations and project agreements, or in order to maintain their facilities.

It is clear that each of these scenarios has a different impact on a company’s risk assessment and the insurance cover required. Now that most international insurers and brokers have ceased operations in Russia, there are already clear implications for the design of international insurance cover. In future, many companies will be able to cover Russian risks through Russian insurers only. Having said that, following Russia’s ban on reinsurance in “unfriendly states”, there are many uncertainties for German companies with regard to the scope of coverage, the regulatory reliability and the financial stability of Russian insurers. Insurance cover provided by Russian insurers could, however, be an option for German companies, for example in the field of mandatory insurance or where business partners require proof of local insurance coverage.

Customers should be well aware of the potential implications of certain T&Cs currently being included by a number of insurers in their German policies. Such implications include the cancellation of war or confiscation clauses, the introduction of new war exclusion or territorial clauses, according to which specific regions would no longer be insured.