Russia’s ongoing invasion has had a devastating impact on the Ukrainian economy, with Russian forces deliberately targeting businesses and infrastructure and blockading Ukraine’s ports in an attempt to bankrupt the country. To fight back on the economic front, Ukraine needs to encourage domestic and international investment. This is why increased war risk insurance coverage is so important for Ukraine.
Since the start of the Russian invasion almost twenty months ago, there has been significant progress in expanding insurance coverage for businesses. The World Bank’s Multilateral Investment Guarantee Agency (MIGA) recently approved a ten-year, $9.1 million insurance package for the M10 industrial park project in the Lviv region of western Ukraine. Once completed, the facility is expected to create 3,000 new jobs and provide a significant economic boost to the surrounding region.
This insurance contract is partially funded by donor countries through the Support for Ukrainian Reconstruction and Economic Enhancement (SURE) Trust Fund, which is administered by MIGA. It is widely seen as a showcase for other investors, highlighting the investment insurance instruments already available in Ukraine.
In addition to MIGA, the US International Development Finance Corporation (DFC) is actively engaged in the issue of war risk insurance for Ukraine, with several applications worth hundreds of millions of dollars currently in the pipeline. Meanwhile, the German government recently extended export credit guarantees to Ukraine, broadening the scope of support for companies operating in Ukraine, and the French export credit agency Bpifrance Assurance Export now offers insurance coverage to French companies investing in Ukraine.
For more than a year, the Polish Export Credit Insurance Corporation (KUKE) has been providing guarantees for the sale of goods in Ukraine. Thanks to this support, Polish exports to Ukraine increased by almost 55% in 2022. Poland has recently adopted legislation that will pave the way for a KUKE programme for the participation of Polish companies in the reconstruction and recovery of Ukraine. Significantly, this legislation will make it possible to provide insurance cover to Polish branches of international companies.
The expansion of war risk investment insurance in Ukraine has been publicly supported by G7 leaders, the European Commission and a number of individual national export credit agencies. The German, French, Italian, British, Swedish and Japanese export credit agencies have already committed to participate in political risk insurance for their companies operating in Ukraine.
The European Bank for Reconstruction and Development (EBRD) is also in the process of establishing a new fund to support the local insurance market for property and trade risks, including insurance of goods in transit or stored in warehouses. This fund is expected to be operational in early 2024.
Looking ahead, another welcome step would be the establishment of extended ECA programmes to cover the risks of Ukrainian investors. This would encourage the creation of joint ventures.
While publicly funded programmes provide some much-needed insurance cover, a key objective remains the reactivation of the international reinsurance market in Ukraine. For this to happen, it is important to challenge the perception of Ukraine as a high-risk jurisdiction. One option is to create a special trust fund to jump-start global war risk insurance and reinsurance. This could be managed by partner country governments together with Ukraine.
Ukraine’s economic resilience is a strong argument for reactivating the commercial insurance market. Thanks to the efforts of the Ukrainian military, thousands of Ukrainian businesses have been able to continue or resume operations since the start of the full-scale Russian invasion, with many of those in front-line regions relocating to safer parts of the country such as western Ukraine. The International Monetary Fund (IMF) recently upgraded its annual GDP growth forecast for Ukraine to 2%, while others are forecasting a much higher final figure for the current year. The Ukrainian Ministry of Economy forecasts GDP growth of at least 4% in 2023, and 5% next year.
The time to act is now. To maintain its defence capabilities and repair the damage caused by the war, Ukraine needs economic stability. Effective insurance coverage that reflects the risks posed by Russia’s ongoing invasion can potentially unlock tens of billions of dollars in investment. This will create the conditions for the return of millions of Ukrainians who have sought safety as refugees in the European Union and beyond. Businesses forced to close by the war will be able to reopen, while exciting new investment projects will spring up across the country.
Insurance initiatives such as MIGA’s send a strong signal to the international investment community that Ukraine is open for business and has a bright future. An expanded war risk insurance architecture will provide a solid foundation for the coming recovery and set the stage for Ukraine’s emergence as a modern and progressive European country.
