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In part one of this three-part series, we focused
on the losses and coverage issues that arose in the insurance
industry as a result of the Russia-Ukraine conflict. In part two,
we focus on a key developing issue for the insurance industry: the
availability of insurance to Russian corporations and/or companies
doing business with or in Russia.
A Drastic Decline in Available Insurance
There has been a drastic decline in recent months of available
insurance policies for companies doing business in Russia or with
Russian corporations. One reason for the decline is the amount of
sanctions imposed on Russia. Because of the vast number of
sanctions – and the fact that there is a lack of harmony
among countries regarding sanctions – insurers must err on
the side of caution when considering whether to issue new policies
of insurance or renew existing ones. This means that insurers may
not sign policies with a prospective insured even if it operates in
sectors not covered by sanctions.
Additionally, some insurers are not planning to issue new
policies covering damages from state-sponsored cyberattacks likely
because of the potential exposure and the uncertainty of when, how,
and where the threat will arise. Moreover, the political risk
insurance market has essentially closed for Russia. (Political risk
insurers protect companies against a battery of calamities,
including economic turmoil and government interference.) Without
such protection, it may be impossible to do new business in Russia
or with Russian corporations because of the potential exposure to
loss in light of the on-going conflict.
In addition to cybersecurity and political risk insurance, other
insurance policies on the decline include trade credit insurance,
which protects an insured from a commercial customer’s
inability to pay for goods and services. Unavailability of trade
credit insurance is a key consideration for companies doing
business in or with Russian-based corporations because there is a
fear that Russian corporations may not pay foreign companies for
products or services provided on credit.
Exceptions for Trade of Necessary Goods
There are, of course, some exceptions. The necessity of grain
exports via the Black Sea Corridor has fostered a commitment to
insure the ships that transport this grain after an agreement was
reached by the UN, Turkey, Russia, and Ukraine at the end of July
2022. Thus, this is likely an area of the insurance market where
insurance will continue to be available for the foreseeable future.
Similarly, an exception is being carved out for the insurance ban
on Russian oil. The EU, the UK, and Switzerland plan to ban
insurance services for Russian oil shipments beginning in December
2022. Under the exception being carved out by the G7 (Canada,
France, Germany, Italy, Japan, the United Kingdom, the United
States, and the European Union), insurance would remain available
for Russian oil that is sold below a specific, yet-to-be-determined
price. However, recently, the plan for the Russian oil price cap
has received some resistance from several EU countries. In
addition, the Biden administration has made clear that it will not
be pursuing some of the sanctions relating to the price cap that
were previously discussed, such as secondary sanctions on foreign
firms. Moreover, the EU has recently backpedaled its commitment to
fully ban Russian coal shipments. Thus, is seems likely that
insurance for companies working with Russia in the various energy
sectors will continue to be available for the foreseeable
future.
Takeaway
The issues regarding availability of insurance mainly impact
either prospective insureds or renewals of existing policies. If
the conflict continues to proceed on the same trajectory as has
been evident over the past seven months, new policies as well as
renewals covering companies doing business in Russia or with
Russian corporations will continue to decline. However, even in the
event an insurer renews a policy or issues a new policy to
prospective insured, it is anticipated that the policy will contain
higher premiums and exclusions to help offset the risk. It is
important for insurers and insureds alike to review current and
future policies to have a clear understanding of what is or is not
covered and to ensure the language for any exclusions or
limitations is clear.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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