On September 27, member companies of the European Business Association, Global Business for Ukraine, and the American Chamber of Commerce in Ukraine met with representatives of the National Bank and the Ministry of Economy of Ukraine to present and discuss the key provisions of the draft law on the war risk insurance system in Ukraine.
Kateryna Rozhkova, First Deputy Governor of the National Bank of Ukraine, presented the concept of the insurance system. The National Bank regularly conducts surveys on the sentiments of businesses, payment market players, and households regarding their economic activity. The conducted studies show that the threat of property destruction deters developers, businesses, and citizens from investing in construction, which is reflected in the mortgage and new housing market. Currently, there are some mechanisms for insuring war risks, such as those from MIGA and DFC, but the state’s task is to create a comprehensive system. Typically, such insurance contracts are reinsured abroad by large insurers, but at present, they are not ready to get involved due to the low capacity of the insurance market.
The National Bank, together with the Ministry of Economy and the World Bank, studied the experience of insuring catastrophic risks in different countries. This includes military risks, threats of destruction, shelling, terrorist threats, as well as political risks, such as changes in policies and regulations. In countries where large international insurers are not involved, separate companies with special status are created. At the state level, a list of risks that the insurer will cover is determined, along with a list of objects subject to mandatory insurance. For example, Israel has a different mechanism – a special tax paid by all individuals, which forms a special state budget fund from which insurance payouts are made.
The National Bank’s task was to find an approach neutral to the state budget, while also generating sufficient liquidity to make compensation payments. Ultimately, they concluded that the war risk insurance system in Ukraine should be based on mandatory insurance for certain types of objects and the creation of a special status insurer – a state agency. Mandatory insurance is necessary to cover a large number of objects, ensuring adequate tariffs and avoiding subsidies for the state agency. At the same time, the calculations in the draft law assume no deductible.
If you would like to receive a presentation on the insurance system with detailed information about the program, please contact Victoria.Burdeina@eba.com.ua.
As noted by Oleksii Sobolev, First Deputy Minister of Economy of Ukraine, the proposed concept will remain relevant even after the war ends, as this system could potentially cover political risks as well. A key goal of the proposed system is to improve access to insurance for businesses. To achieve this, the state aims to create economies of scale by consolidating different programs and involving international reinsurers. Infrastructure must be built to support this, as the interest, funding, and support are already in place, Mr. Sobolev emphasized.
We are grateful to the National Bank and the Ministry of Economy for presenting the concept and discussing it with the business community. The Association will form an assessment of the proposed system and looks forward to further discussion and refinement.
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