It will take more than one year. Сompensation for war-related losses with the eyes of business and the state
On June 24, the European Business Association met with representatives of the insurance and legal market, as well as Deputy Minister of Economy of Ukraine Taras Kachka and Deputy Governor of the National Bank of Ukraine Sergiy Nikolaychuk. The discussion was focused on the current situation in the insurance market, the work of insurance companies, mechanisms for military risk coverage and compensation for war-related losses.
On the situation in the insurance market
To cover military risks, Ukrainian insurers provide services both directly and with the involvement of reinsurers in international markets. By the end of 2021, the cost of covering military risks was relatively insignificant, but from January 2022, tariffs for companies operating in Ukraine skyrocketed. “It is currently very difficult to find an affordable offer of coverage among reputable insurers. The international insurance market is already recording 10-30 billion direct losses from the war and remains restrained in insuring risks originating in Ukraine,” commented CEO of UNIQA Elena Uljee. At the same time, insurance companies continue to work with standard risks, thus UNIQA continues to cover property risks, and provide car insurance and health insurance services.
“Medicine, security, pension guarantees are the basic needs that will help people return to Ukraine, and they can be provided through insurance,” said Natalia Bazylevskaya, Chair of the Board, Grawe Ukraine. According to the company’s statistics, the number of concluded life insurance contracts doubled between March and June. There is also an increase in demand for investment insurance.
On the currency transactions
UNIQA and Grawe are representatives of the Austrian insurance business, which is determined to support its activities in Ukraine. However, Ukrainian insurers are now having difficulties in making full-fledged settlements with international partners and are unable to pay for all reinsurance services due to the currency restrictions set by the National Bank of Ukraine. This situation significantly narrows the ability of companies to insure not only military but also standard risks.
“We are trying to find a balance between the needs of different market participants,” explained Sergiy Nikolaychuk, Deputy Governor of the National Bank of Ukraine. – If we now let all the currency flow abroad, the guarantees for Ukraine’s macroeconomic stability will be put under question. However, foreign exchange transactions were allowed to insure specific cases, namely in the field of nuclear safety, telecommunications, civil aviation risks, operations of the Motor (Transport) Insurance Bureau of Ukraine, and payments under international insurance contracts “Green Card“.
On the compensation for war-related losses
The capabilities of insurance companies are also limited in the context of compensation for losses caused by hostilities. The government understands this and is ready to work on this complex issue. Thus, the losses are being assessed to have grounds for bringing russia to justice. The methodology implies the assessment of both losses that have been inflicted and the ones that may be inflicted in the future. “The formula is simple – russia must pay. Negotiations are already underway to lift immunity from russia’s frozen assets to use them to rebuild Ukraine, said Taras Kachka, Deputy Minister of Economy of Ukraine. “But we need to be patient because it can take years to develop compensation mechanisms.” International assistance will also be involved in setting up a Fund from which compensation will be paid. Mr. Kachka commented: “There should be the maximum level of trust for Ukraine’s partners to give us money. The desire to create such a Fund is very strong and we are not just discussing the idea here. For example, we have already launched the guaranteed coverage of vehicle losses – cars, planes, barges, etc”.
Maryna Sharapa, Partner of Arzinger, also stressed the need for government investment insurance programs that would cover military risks and their importance to business. Such programs and mechanisms are currently being developed that include the potential establishment of a trust fund with the involvement of international partners. As for compensation for the damage caused by military aggression, there is currently no single way that would be effective in each case of inflicting such damage. However, some mechanisms are available now, for example, one can try to appeal to the European Court of Human Rights. “The ECHR has a limited deadline for filing an appeal, so businesses must already prepare the necessary package of documents if they intend to use this mechanism,” advised Maryna.
The European Business Association thanks the speakers and participants of the event for covering insurance issues that are so relevant during the war!