How the Ukraine War benefits Russian insurers – and to push insurance premiums everywhere – InsuranceNewsnet

A EU/UK plan to prohibit their insurers provide cover to ships carrying Russian oil causes tensions with Washington. America argues that the domination of global insurance by Europe will make it very difficult to Russia export oil if it goes ahead, which could drive oil prices much higher than they already are.

Yet this may not happen, because Russia is make moves overcome the problem itself. The national reinsurance company, RNRC, is would have intervened replace Western insurance companies by insuring fleets and their cargoes. Russia will also now provide third party liability and environmental damage cover in place of Protection and Indemnity (P&I) clubs. If these changes are viable in the long term, it will mean that some of the business that was primarily aimed at European and UK insurance companies will now be retained in Russia.

This is only one of the many ways in which Western insurance are affected by the war in Ukraine. Insurers are already facing heavy losses Sanctions adopted in March prohibiting the provision of various types of cover to activities related to Russia. This has significant implications at all levels for business and society. So what happens and where does it go from here?

Insurance and geopolitics

The insurance industry eclipses the GDP of every country in the world except China and the United States. We thought it was worth more US$5 trillion (£4 trillion) in premiums paid in 2021 and is expected to increase by 10% in 2022.

We’re all used to thinking that insurance companies protect people and businesses from risk, but behind that lies another set of specialist companies called reinsurers. These players insure the risks of insurance companies against, for example, losses resulting from claims, i.e. they offer insurance taken out on insurance. In some cases, complex insurance and reinsurance networks exist to ensure that the risk is properly protected.

Main insurers and reinsurers by turnover

Before the invasion of Ukraine in February, there were cases where sanctions against Russia involved the insurance industry. When the United States pressured Germany To abandon his Nordstream 2 gas pipeline project, insurance and reinsurance companies were one of those who got out until the Biden administration relaxed its approach.

This time around, it’s a whole different level. Complaints have been made on policies related to aviation, maritime transport, trade credit, cyber and political risk. This represents only a relatively modest exposure for the entire industry, but the potential long-term effects are another matter. Since the imposition of Western sanctions in March, major players such as Lloyd’s of London, Swiss Re and SCOR and brokers such as Marsh, Aon and Willis Towers Watson have stopped take new business from Russia. With a considerable amount of insurance previously provided to Russian sectors such as aviation and space London and New Yorkfor example, this is a major change.

We are now in a situation where the planes of the world no longer pass Russia. This raises the prospect of years, if not decades, of claims by owners of up to 600 planes seizedmany of which are rented out.

Count the cost

Considering the global blow to the western insurance sector by deterioration of relations with Russia is not easy. This is partly because much depends on the worsening of the current crisis and the possibility of finding a political or military solution.

In early April, a report from S&P Global predicts that losses incurred by specialized categories such as aviation, maritime and political risk would be in the order of 16 billion US dollars at 35 billion US dollars. Lloyd of London alone was reported in March as facing payouts in aviation and space between 1 billion US dollars and 4 billion US dollarsi.e. 1% of its premiums.

industry could be affected by payments on claims for one or even two decades, acting as a brake balance sheets of insurers waiting. Those who have not yet downloaded their Russian business also runs the risk of their policies being seized by the Russian government.

Meanwhile, premiums are rising more and more as insurers seek to make up for their losses, especially in all categories except life insurance. It is said that worldwide aviation insurance premiums have doubled as insurers seek to protect their profit margins. Premiums on tankers and other important goods in the Black Sea, such as agricultural and cereal products, have also increased significantly. All of this will translate into higher prices for consumers and businesses, even outside of all the other current inflationary pressures.

Another affected area is cyber insurance, which protects against the risk of cyberattacks. With Russia linked to numerous cyberattacks, both in relation to Ukraine And other countries, the demand for cyber-assurance has increased, but it becomes more and more difficult to obtain and therefore prices are soaring.

Russia is a potential winner in a lot of this. Assuming the sanctions continue, it is likely that Western insurers will increasingly be replaced by Russian insurers (and those from countries it deems friendly). For instance, The RNRC is already replacing Western reinsurers for other cargoes than oil. Russia can also follow the pattern in Iran where various new state guaranteed reinsurance pools, companies, P&I clubs and co-insurance (several companies providing cover) have been created in response to the sanctions.

Russian sanctions and the forced exodus of Western companies from the Russian market leave Russia with the good fortune of having in-house expertise and knowledge inherited from the insurance and reinsurance industry that it did not pay for. While Western insurance companies have to absorb the hit from the sanctions, it is not entirely clear that their Russian counterparts will suffer in the same way.

The authors do not work for, consult, own stock in, or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.