RISK Radar report. SAYENKO KHARENKO UKRAINE
After Russia launched a full-scale invasion in 2022, Ukraine faced its hardest times since gaining independence in 1991. The Russian war is still holding the Ukrainian economy back from steady growth. Even though Ukrainian GDP has not yet reached its pre-war level, it is nonetheless growing again and is expected to reach close to US$170 billion by the end of 2024.
The same can be said about the insurance market in Ukraine. According to the National Association of
Insurers of Ukraine, insurers in 2023 started to make a strong recovery, with premia growing 7.2% compared to 2022. It is still less than in 2021, but the overall trend looks promising. In an effort to continue that pace of growth in 2024 and beyond, market players will look closely at the significant changes in insurance legislation, the elephant in the room – war risk insurance – and troublesome events on the Polish border with Ukraine.
Redesign of the legal framework
Undoubtedly, the biggest focus for the Ukrainian insurance market in 2024 is an ongoing overhaul of its legal framework. Aiming to bring its insurance system in line with European Solvency II requirements and
fulfilling its commitments to the IMF, Ukraine commenced a huge insurance reform as early as 2021. Now the marathon project is in its final phase.
The new law on insurance, as well as the law on financial services and financial companies, came into force on 1 January 2024. Among other important changes, the new legislation imposes higher solvency
standards and alters some requirements for non-resident insurers. The legislator expects insurers to have complied with a new legal framework by the end of June 2024. However, the insurance market believes that this is not enough time to make the necessary changes.
“The new insurance law and law on financial services and financial companies brings some new challenges that insurers will have to adapt to. Notwithstanding, we see it as a promising shift for the Ukrainian insurance market overall.“ Volodymyr Sayenko, Partner, Sayenko Kharenko
War risk insurance
War risk has been a challenge for businesses since the annexation of Crimea and the instigation of war actions in the East of Ukraine by Russia in 2014. The 2022 full-scale Russian invasion of Ukraine has made this issue even more critical.
According to the OECD classification (OECD 2023), Ukraine had the highest possible risk level, on par with Afghanistan, Cuba, Iraq, and several African republics. The Ukrainian economy has had to deal with these challenges and work to overcome them. Accessible and reliably working war risk insurance would help to tackle this challenge.
The National Bank of Ukraine, Ministry of Economy and Ministry of Finance, together with international donors, such as EBRD, are all working on delivering a concept note which would bring a fully functional war insurance system in Ukraine to life.
“The war risks mechanism is a central topic for the insurance market right now. It is crucial to have this working properly.“ Volodymyr Sayenko, Partner, Sayenko Kharenko
Western border bloc
Understandably, Ukraine has been forced to close its skies to everything other than military purposes. Due to the occupied southern territories, Russian sea mines, and their military presence in the Black Sea, Ukraine also has limited sea access. Commercial marine routes from Ukraine have become extremely difficult and risky.
As a result, commercial logistics now rely heavily on the rail and road network through the western border of Ukraine. The border with Poland is vital, which is why the Polish farmers’ strikes which blocked the Polish-Ukrainian border were so damaging to Ukrainian businesses.
According to 36 European Business Association (EBA) member companies, the total bill of losses since the strikes began amounted to at least €24.8 million, which is almost €700 thousand per company. This not only impacts businesses but insurers too.
“Uncontrolled disruptions of commercial logistics are always an unwanted risk for insurers. We need to keep an eye on the situation, particularly from a legal perspective.“ Volodymyr Sayenko, Partner, Sayenko Kharenko
