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Tag: ukraine war

Update on Insurance in Ukraine: Money Transfers Between Insurers and Reinsurers Possible Again

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Overall insurance capacity on the local market remains rather low. Since beginning of this year, there is no more cover for SRCC, terrorism and sabotage available.

At the day of the outbreak of war in Ukraine, February 24th, 2022, the Ukrainian government introduced martial law in the country, which meant among other stipulations that money transfers were limited to a very small number of transactions. The intention behind this was to create the list of services and products for critical import need only and protect Ukrainian currency against speculation and depreciation. The international payments from Ukraine were stopped, which lead to the substantial decrease of the local insurance capacities.
 
Within 2022 the list of critical import was reviewed and expanded and now, the National Bank of Ukraine (NBU) has revised this policy by a decision of February 14th, 2023, to allow money transfers in the financial sector.
 
 Each local insurer has to apply anew for the authorization of premium and claim payment transfers; the insurer will then be listed as authorized company by NBU.
 
Authorization will be granted to insurers which did not violate the strict money transfer and special economic sanction regime valid since the beginning of the war. Insurance companies in Ukraine have to show in full transparency their ownership structure, solvency standards, capital adequacy and risk operations and they have to prove the good business reputation as a company and that of their owners and managers. Money transfer will be possible to non-resident reinsurers with a rating level not lower than “A3” (Moody’s), “A-” (Standard & Poor’s), “A-” (Fitch Ratings), “A-” (A.M. Best).
 
It cannot be said, however, that these new transfer possibilities lead to a renewed interest of “Western” insurers and reinsurers to offer capacity for Ukrainian risks. Existing reinsurance treaties will be honored and the support for local insurers will be given to a certain extent, but market opinions indicate that “Western” reinsurance markets will still be reluctant to engage themselves in Ukraine due to the open war situation.
 
Ukrainian insurance market data from 3rd Quarter 2022, the newest ones available, show a 21.4 % decline in Non-Life insurance and a 13.85 % decline in Life, leading to an overall premium volume in the first three quarters of last year of UAH 25 billion (EUR 625 million).
 
Overall insurance capacity on the local market remains rather low. Since beginning of this year, there is no more cover for SRCC, terrorism and sabotage available.
 
We shall keep you informed regularly on any new development on this market.

The article is written by Andreas Krebs and Tetyana Mieshkova.

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

Andreas Krebs

Tetyana Mieshkova

GrECo / MAI Ukraine

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The Price Cap on Russian Oil – Implications on Insurance

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The Price Cap on Russian Oil – Implications on Insurance

Many insurers including insurance brokers will now be able to provide insurance services for Russian crude oil shipments to countries which are not part of the Price Cap Coalition provided that the price of the Russian crude oil cargo from the time it is loaded until it has cleared customs at the port of destination is at or below $60 per barrel.

The EU, G7 and Australia (the “Price Cap Coalition”) have recently introduced legislation and guidance effective 5 December 2022 intended to maintain the supply of Russian oil to world markets whilst at the same time reducing Russia’s earnings from its oil exports (the “Price Cap Scheme”).

Under the Price Cap Scheme, various insurers including insurance brokers will now be able to provide insurance services for Russian crude oil shipments to countries which are not part of the Price Cap Coalition provided that the price of the Russian crude oil cargo from the time it is loaded until it has cleared customs at the port of destination is at or below $60 per barrel (the “Price Cap”). A separate price cap will be introduced on 5 February 2023 for Russian petroleum products.

Ships with Russian crude oil on board on the 5 December commencement date may continue to lawfully perform the voyage even if the cargo has been sold at a price above the Price Cap if the voyage will be completed and the cargo offloaded by 19 January 2023.

Rules for insurance of Russian oil shipments

Insurers, insurance brokers, shipowners and charterers will now be required to check the price of Russian oil cargoes on board ships they own, charter or insure. These checks will take the form of contractual attestations provided by their contractual counterparties stating that for the relevant period the price will not exceed the Price Cap.

A Cargo owner or shipowner or Charterer that intends to transport Russian crude oil cargoes after 5 December will now need to provide its insurance service providers with an attestation that it will not for the duration of the period of insurance carry Russian oil cargoes which have been sold at a price that for the period during the voyage has exceeded the Price Cap. This attestation will be required for all types of Marine insurance.

Insurance cover for the carriage of Russian crude oil loaded after 5 December 2022 and petroleum products loaded after 5 February 2023 is dependent on various insurers complying in full with the requirements of the price cap schemes, including the provision of appropriate attestations. Insurers will be required to withdraw cover where there are reasonable grounds to suspect that the carried cargo was purchased at a price greater than the price cap..

Price Cap is part of the sanction regime

Under the Price Cap scheme, those persons that are subject to the jurisdiction of the EU, G7 and other coalition partners such as Australia will be prohibited from transporting and/or providing services (including insurance services) that enable the transportation of Russian origin crude oil and oil/petroleum products unless it has been sold at or below the Price Cap. The prohibition on services provided by a service provider based in an EU, G7 or other coalition partner jurisdiction extends to shipments by or to third countries that are not part of the EU / G7 coalition and to that extent will have an extra-territorial effect.

Please note that various price cap schemes largely mirror each other but there are significant differences between them. For example, the period during which the Price Cap must apply to benefit from the EU Price Cap scheme is longer than under the equivalent UK and US legislation. Under the EU scheme even where the oil has cleared customs at the third country destination in circumstances where it then “…becomes seaborne again without being substantially transformed into a different good in line with non-preferential rules of origin. (i.e. without being refined) … the price cap will still apply.”

Again, parties are expected to obtain appropriate attestations of cargo price the nature of which will depend on which Tier they fall into. The definition of the Tiers by the EU is the same as that adopted by the UK and US with shipowners and various insurance service providers identified as Tier 3 Actors. Parties are required to keep records of Price Cap transactions for five years.

For example, shipowners are considered Tier 3 Actors by all three jurisdictions. As such, a Shipowner must obtain a contractual commitment from its contractual counterparty – usually the charterer – that its counterparty has committed not to purchase Crude Oil or Petroleum Products above the Price Cap. Such an Attestation may be a stand-alone document or included within a wide contract.

Validity of cover as long as Price Cap is respected

Various stakeholders should note that from 05:01 GMT 5 December 2022, insurance cover for Russian Crude Oil Price Cap cargoes is conditional upon the unit price of the Russian Crude Oil supplied or delivered, or being supplied or delivered, being at or below the Price Cap. To comply with the Price Cap scheme insurers are required to withdraw cover in circumstances where there are reasonable grounds to suspect that the Price Cap attestations provided are false and/or where the cargo is sold after the voyage has commenced at a price greater than the Price Cap. Where a breach is identified after loading vessels may be left uninsured and without access to normal banking services for an extended period whilst the authorities determine how best to dispose of the cargo.

First reactions concerning insurance

According to Business Insurance online of December 12th, 2022, Russian insurer Ingosstrakh declined to insure oil cargoes not compliant with the price cap. Insurance will only be available on the same requirements as for the “Western” insurers.

Turkey’s maritime authority said it would continue to block the passage of oil tankers without appropriate insurance letters, adding that the insurance checks on ships in its waters was a routine procedure, with a focus on transit through the Bosporus Strait or calls at Turkish ports.

The article is written by Andreas Krebs and Kristo Ristikivi.

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

Kristo Ristikivi

Group Practice Leader Cargo

T+372 506 9809

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End of International Coverage for Russia / Belarus / Ukraine?

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End of International Coverage for Russia / Belarus / Ukraine?

In the negotiations taking place on contract renewal, it has turned out that the international insurance industry is no longer willing to agree on coverage for Russia and Belarus, and the options for coverage in Ukraine are also very limited.

Since it began, the Russian aggression against Ukraine has led to numerous economic changes, the scope of which still cannot be fully assessed. Keywords such as energy crisis, inflation, stagflation or even recession dominate international reporting, lectures and discussions. The insurance industry’s core business was affected by the consequences of the war from the start. In the beginning, there was the withdrawal of “Western” reinsurers from the Russian market, followed by the self-isolation of the Russian insurance market and the interruption of cross-border payment flows due to the declaration of martial law in Ukraine.

Both markets – Belarus plays a subordinate role here given the low level of international trade and investments – were thus isolated, but insurance cover was still available locally, albeit with significantly reduced capacities, especially in Ukraine. It was therefore reassuring that international insurance programs were honoured during their remaining contract period in 2022 and coverage was provided for all three states involved in the war via the Financial Interest Clause of the master contract.

Territorial exclusion is an issue during insurance contract renewal

In the negotiations taking place on contract renewal, it has turned out that the international insurance industry is no longer willing to agree on coverage for Russia and Belarus, and the options for coverage in Ukraine are also very limited. It is, of course, the first time in decades that a war involving a major power is taking place that is being opposed and indirectly fought by other major powers, and this is probably the reason why insurers have not only focused on the exclusions of coverage briefly described below in connection with war and the imposition of sanctions but introduce a territorial exclusion for Russia, Belarus and Ukraine. This attitude is unique and must therefore be examined critically at this point. The exclusion clause, as also acknowledged by reinsurers, represents the last link in a three-part exclusion chain, a simple solution that avoids any discussion concerning a risk located in one of the countries.

Traditional: the War Exclusion Clause

Let us now take a closer look at this three-part set of exclusions.

The traditional precaution of the insurer against having to pay claims which would by frequency and amount destroy any insurance portfolio and might lead to a serious threat to the continued existence of the insurance company is the war exclusion anchored in the General Conditions, above all for property and liability insurance, although differently defined. In fire insurance (including business interruption!), the clause says that “damage caused by the direct or indirect effect of acts of war … including all acts of violence by states …” as well as “all military or official measures connected with the acts mentioned …” are not covered.

According to a newer definition, liability insurance does not provide insurance cover “for damage caused by acts of violence by states or against states and their bodies, acts of violence by political and terrorist organizations, …”. Both definitions are therefore very broad and general and will be checked by the insurer in the event of a claim in Ukraine and, if necessary, applied to decline payment of a claim. However, the burden of proof lies with the insurer – despite the contrary, contestable definition in property insurance that can sometimes be found. In any case, the insurer is protected against claims for war damage.

Sanctions prohibit insurance in certain areas

After the war broke out, the EU as well as the US and UK, responded with economic sanctions against Russia, specially designated Russian citizens and entities. The eight packages of sanctions of the EU now in existence are related to export and import restrictions for precisely named goods recorded in lists. Compliance with the sanctions is binding for legal and natural persons within the EU, disregarding them or circumventing the EU is a punishable offence. It follows that no insurance cover can be granted for sanctioned persons, organizations and goods, including their production, trade with them and transport.

In recent years – long before the war in Ukraine – insurers have therefore formulated sanctions clauses that exclude coverage for activities and goods subject to sanctions. The insurers’ exposure is thus further reduced since some sectors and products are now subject to sanctions for Russia. However, it must also be emphasized that the EU has expressly stated that there must be no product sanctions for food, sanitary articles, medicines and other products of humanitarian need. Although sanctions intend to affect the Russian economy, they should not contribute to punishing innocent citizens. It is therefore expected in the dialogue between insurance customers and insurers that the sanction clause will be checked for its specific applicability in individual cases when the insurance contract is concluded or in the case of a claim.

Territorial exclusion reduces the value of the International program

These two clauses, which are justified and allow an examination of the individual case and represent at least some protection of the insured if a claim is not due to war or in connection with sanctions, are now accompanied by territorial exclusion as a third clause. Its application means that the insurer no longer has to deal in any way with risks, contracts or claims in any of the countries concerned. It is therefore an a priori refusal of cover, which has only seldom been seen in this form up to now. It has not even been applied to the famous “rogue states”.

Insurance lawyers will object here that there is no obligation to contract in industrial insurance and that the insurance company can refuse to assume a risk at any time. The legal provisions on the increase in risk even suggest that an insurer does not have to assume a risk that it considers to be high. This is correct, but for reasons of fairness alone, an insurer who is willing to insure known risks worldwide as part of an international insurance program should not start excluding individual countries. If such an example catches on, it’s not far to the erosion of the insurance program, when other countries that are problematic for whatever reason, like China, Iran and whoever, are put on the exclusion list.

Another often-heard argument for this exclusion is compliance: it is not appropriate to continue to support the Russian economy and this also applies to insurance and reinsurance. As with other measures, however, the one who ultimately suffers is not the warring state of Russia, but the policyholder who has gone to the countries of Eastern Europe with his activities. He is now told that he can insure his risks locally, which is a very weak alternative given the limited capacities in Russia or the scarcity of insurance sums in Ukraine. Comparable to accepting a high degree of underinsurance.

Individual solutions required

Nevertheless, we are confident that in individual cases it will be possible to obtain coverage in the country of the master treaty when it comes to risks with a humanitarian context, when the risk locations are not directly in war-affected areas of Ukraine, when the volume of insurance in one of the states concerned is small compared to the rest of the world, when transports between third countries involving one of the three states have to be insured, etc. It is worthwhile to negotiate with the insurance industry on an individual basis, at least to arrive at a compromise solution, such as coverage with a review clause in the event of a clear escalation of the war.

The article is written by Andreas Krebs.

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

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Beyond International Programs – Cover Exclusions for Russia, Belarus and Ukraine

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Insurance cover exclusion papers

For ongoing insurance programs with inception before the start of the Ukraine war, there is in most cases still insurance cover through the agreed home country Master contracts, DIC and FInC covers until next renewal.

The European insurance and reinsurance markets are currently not providing any new covers for property and business interruption risks in the territory of the Russian Federation, in Belarus and, with a few exceptions, in Ukraine. For ongoing insurance programs with inception before the start of the Ukraine war, there is in most cases still insurance cover through the agreed home country Master contracts, DIC and FInC covers until next renewal.
 
However, the geographical scope will be restricted for all upcoming renewals and new contracts, and the countries mentioned will thus generally be excluded from insurance cover. This primarily affects the designated locations previously insured under the programs, but the exclusion goes beyond that and applies equally to any non-specified risk and assets located in those territories. In the past, such risks were included in standard insurance contracts, for example, by special clauses for small foreign risks (offices, small storage places etc.) or by the automatic temporary inclusion of “New business locations”. In Business interruption, all supply-chain disruption and NPDBI endorsements may be concerned.
 
It should therefore be checked in all upcoming renewals whether there could be a gap in coverage because of the general exclusion of those territories, which has to be discussed with the client.  Unfortunately, the only remaining alternative is to try to buy insurance cover for these risks from local insurance companies with the support from our local co-broker.
 
Even if property insurance is the main topic here, it should be noted that a similar exclusion for risks that arise within the affected countries can also be expected to prevail in the other lines of insurance.

The article is written by Andreas Krebs.

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

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Legal assessment of the risk exclusion “war” in insurance

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war risk exclusion in insurance

The current military conflict between Russia and Ukraine can easily be classified as war for the question of the interpretation of insurance conditions. It will be less easy to answer whether specific damage is covered by the war risk exclusion clause.

In view of Russia’s aggression against Ukraine, it is worthwhile to examine the question to what extent claims caused by or in connection with war (the so-called war risk) have to be indemnified by insurers. Insured companies ask themselves whether their insurance contract is still valid in a war, and which claims will be paid. Vice versa, insurers will have to check whether and how far war is excluded from insurance cover in order to be able to decide about the settlement of the claim. This article, which is based on the main reinsurers’ wordings and technical literature gives an overview of these two questions, which are essentially two sides of the same coin.

General treatment of war risk by the insurer

The basic obligations arising from an insurance contract relate to the payment of the premium by the policyholder and the confirmation of cover by the insurer. The extent to which insurance cover is granted results from the general description of the insured risk through the primary risk limitation (the declaration which interests are insured against which risks and in which situation). At the second level (known as secondary risk limitation), risk exclusion allows a portion of the scope of coverage covered by the primary risk limitation to be excluded and to remain uninsured. The purpose is that a major or global risk, the consequences of which cannot be calculated by the insurer, must not be part of an insurance portfolio to not endanger the existence of the insurance system through the risk of accumulation. Excluding a given risk, like war, the insurer limits the insurance cover from the start.
 
For this article, it is therefore relevant whether the risk of damage in the event of war is either expressly accepted in the course of the primary risk limitation or is mentioned as a risk exclusion in the secondary risk limitation in the insurance conditions. The first group includes those insurance products that enable the policyholder to be protected against losses due to “political risks” and “political violence”, which include war and civil war. The (special) insurers offering these products therefore assume this risk with the full intention to provide this cover, which does not need to be dealt with further because the obligation to pay claims caused by this risk is unlikely to become disputed.
 
On the other hand, those insurance policies where an insurer does not want to provide cover in the event of war (events) and has therefore stipulated an exclusion of this risk in his insurance wording should be examined more closely. It is crucial how the exclusion is defined in the wording in order to differentiate between insured and uninsured damage.

Definition of war risk exclusion

Originally being a part of Property, Machinery and Transport (on land) insurance, war risk exclusion clauses have become common in all lines of business in the aftermath of the 9/11 terrorist attacks. The various perils enumerated in the exclusion clause have also been standardized, their definitions have been strongly influenced by the London Market for global insurance and reinsurance business.
 
To give just an example, we quote the Swiss Re war exclusion clause:

This Policy does not cover any loss, damage or liability occasioned by or through or in
consequence, directly or indirectly, of any of the following events, namely:
 
(a) war, invasion, act of foreign enemy, hostilities or warlike operations (whether
war is declared or not), civil war;
(b) mutiny, military rising, insurrection, rebellion, revolution, military or usurped
power, martial law or state of siege, nationalization, confiscation, requisition,
seizure or loss of or damage to property by order of the government or by any
public authority;
(c) strike, riot, civil commotion and popular rising.

What can be expected from claims handling?

The current military conflict between Russia and Ukraine can easily be classified as war for the question of the interpretation of insurance conditions.
 
It will be less easy to answer whether specific damage is covered by the war risk exclusion clause. Even if Russia has militarily attacked Ukraine on a geographically extensive basis and Ukraine is also defending itself with armed force, not all damage on Ukraine’s territory (or outside of a declared war zone – such as in March 2022 in Zagreb, where a Soviet Tupolev M-141 long-range reconnaissance drone crashed) result from or are related to it. Rather, policyholders could also be entitled to claims from so-called “non-combat losses”.
 
Therefore, insurers and policyholders will have to compare the war exclusion clause contained in their individual insurance wording with the nature of the damage that has occurred in each case. Then can be determined whether the claim is covered or excluded. Certain “grey areas” exist, such as claims resulting from ordinary malicious damage, from consequence of war action at a certain distance from the location insured – what is the exact meaning of “indirectly caused by war”?, of “in consequence with war”?
 
The interpretation of these stipulations remains to be seen, as there is only scarce experience in Europe with insurance in times of war. Generally speaking, guidance can be obtained from High Court rulings stating that risk exclusions must not be interpreted further than their meaning requires, considering their economic purpose and the exact wording used. The insurer has to prove that an exclusion applies. The Swiss Re war clause already quoted, which is the basis for many insurance wordings in European countries, stipulates that the burden of proving that such loss, damage or liability are covered shall be upon the Insured. We feel, however, that this stipulation is contrary to the burden of proof obligation on the insurer in every case where he alleges that a claim is not covered due to a given exclusion. As this is common jurisdiction in all lines of insurance, the Swiss Re wording should be easily overturned.
 
In any case we recommend that the insured make a comprehensive documentation of the extent to which “non-combat damage” has occurred in order to be able to comply with all obligations of information and documentation imposed by insurance law. It is to be expected that insurers will or must make use of their right for information in order to be able to make coverage decisions that meet the legal requirements and to be able to meet the burden of proof for the existence of an exclusion. A negative decision on coverage by the insurer must be made in writing and at least be justified by citing a fact and legal or contractual provision on which the rejection is based. The lack of material and secured evidence, in war regions normally provided by the insured, will delay, if not totally jeopardize, the further handling and settlement of a claim. 


(This article is based on an editorial contribution for Austria by Dr. Ralph Hofmann-Credner M.B.L.-HSG, owner of law firm HOFMANN-CREDNER Rechtsanwälte GmbH, Vienna.)

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War in Ukraine and Cyber Insurance

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Since the start of the war in Ukraine, fears of cyber-attacks due to parallel hybrid war are increasing. In this article we explain how the insurance industry is reacting and how the war clause affects conditions.

Is there an increased cyber threat from the war in Ukraine?

Officials like the German BSI are currently assuming an “increased threat level”. However, there is currently no immediate threat to information security in connection with the situation. However, there are already suspicions of individual cyber-attacks in connection with the war. The German wind turbine manufacturer Enercon, for example, was no longer able to carry out remote maintenance on its own systems. The reason for this was a disruption in the satellite network.

How are cyber insurers reacting?

Immediately after the outbreak of the war, our cyber specialists contacted cyber insurers in order to know their reaction. The general feedback was that the situation was being assessed and, especially in the area of critical infrastructure, that decisions will be taken with even more restrictions.

Does the war exclusion clause apply?

Cyber insurances usually have so-called war exclusion clauses, according to which damage caused by war or war-like events are not insured. The classic exclusion of war means that there is generally no coverage in the case of a targeted action by an attacking state using physical force.

If the cyber-attack is originated by so-called state sponsored hacker groups, there is no direct-targeted action by an attacking state, and therefore no war in the sense of the definition. In addition, Russia is at war with Ukraine and not with other countries, a point to be considered when insurance wordings are interpreted. Even if a cyber-attack on a company is directed by a state, this is still no official war action. It is the insurer who must provide evidence that the cyber-attack is originating from a state if he thinks that the exclusion is applicable. It will be very difficult for the insurer, however, to prove such a fact, because hackers usually do not announce that they are acting for a government.

How about the ransom payment?

Ransomware cases are currently the No. 1 cyber threat. Access to data or services is blocked and a ransom is demanded for activation. The ransom payment is generally insurable. If the blackmailers are Russian hacker groups, policyholders must expect that the insurers will not make any payment without a positive sanctions and compliance check. Due to the extensive sanctions against Russia, ransom payments to Russian hacker groups are usually subject to sanctions and insurance payments are therefore contractually and legally prohibited.

Summary

We are currently not observing cyber-attacks in connection with the war in Ukraine that would occur in Austria and Central and Eastern Europe. Cyber insurers still take responsibility for protecting this number one corporate risk. In our opinion, the traditional war exclusion would not apply in the event of an untargeted attack. Ransom payments might be subject to the sanctions and therefore forbidden.


The article is written by Stephan Eberlein.

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Anita Molitor

Operation Executive

T +43 664 962 40 08

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Terrorism and Political Violence Insurance

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For many insurance buyers in Europe Terrorism and Political Violence Insurance remains a niche coverage, although it is often required by financing banks or investors.

A terrorist attack, strike, riot, civil commotion and other types of politically motivated unrest can directly and indirectly affect businesses and human lives. Modern day terrorism is multifaceted and constantly evolving in its nature. An insurance policy cannot save lives, but it can provide for financial remedy to business owners to help them restore damaged property and recover quickly, to minimize financial losses resulting from business interruption or loss of rent or loss of attraction.

For many insurance buyers in Europe Terrorism and Political Violence Insurance remains a niche coverage, although it is often required by financing banks or investors. Despite major events such as 9/11 or Paris attacks, markets have not really seen a significant uplift in demand or price. The approach has changed only a few days after the invasion of Ukraine. Many businesses are looking to buy the coverage and are prepared to purchase it at higher costs. Active war in Ukraine has forced the market to shrink, but it remains largely intact.

Insured interests and perils

Critical infrastructure assets, such as energy and communication, are typically considered high risk. But also, other industrial objects and commercial real estate are often targets of terrorist attacks. Needless to say, that the nature of the risk itself has evolved over the past few decades. Due to high interconnectivity of modern economies, significant financial losses can occur even without a physical damage.

Whilst terrorist attacks, including active assailant or “active shooter” events, are becoming less frequent in certain regions, politically motivated violence or unrest and war is currently on the rise. Such events can cause enormous damage to property and interruption to businesses. Strikes, riots, civil commotions and malicious damage caused by individuals or groups often result in destruction of property and looting. Business owners may even become liable to third parties if they fail or neglect to implement safety and protective measures to safeguard life and property of others which is an exposure insurable under terrorism liability, a line of insurance not widely known.

The policies are written on “named perils” basis, which means that specifically named perils or events are insured. The coverage is granted to specifically scheduled and named property and gross profit. It is recommended to purchase policies on “new for old” basis. Underwriters will require a policy limit, which acts as a Combined Single Limit for property damage and business interruption.

The following coverages are available either separately or as a package:

Critical infrastructure assets, such as energy and communication, are typically considered high risk. But also, other industrial objects and commercial real estate are often targets of terrorist attacks. Needless to say, that the nature of the risk itself has evolved over the past few decades. Due to high interconnectivity of modern economies, significant financial losses can occur even without a physical damage.

There are specific exclusions of course. The aim is to draw clear lines with other, conventional property damage and business interruption coverages and avoid overlaps. Herewith, few key exclusions:

Loss or damage arising from:

  • Nuclear, Chemical, Biological or Radiation contamination or release
  • Seizure, legal or illegal occupation of property, Confiscation, Nationalization, Requisition
  • Electronic attacks – Cyber Terrorism
  • War between any two or more of the following countries: China, France, the Russian Federation, the United Kingdom and the United States of America (“World War Exclusion”)
  • Direct or indirect threat or hoax.

Standard Coverage does not cover:

  • Land or Land Values
  • Power, transmission or feeder lines not on the Insured’s premises
  • Any building, structure, or property vacant or unoccupied or inoperative for more than thirty days
  • Aircraft or any other aerial device, or watercraft
  • Any land conveyance. including vehicles, locomotives or rolling stock, unless declared and solely located at the property insured herein at the time of its damage
  • Animals, plants and living things of all types
  • Property in transit

Extensions of coverage

In addition to the above-mentioned coverages, there are a number of coverage extensions available, such as:

  • Terrorism liability: covers financial costs incurred by an insured following claim made against them for the damages suffered by third parties or employees who are injured in a terrorist attack at an insured location;
  • Non-physical damage business interruption: unique solution, which addresses the resultant financial burden of terrorism attacks occurring within the surrounding areas of an insured property which do not result in actual physical damage at an insured location;
  • Active assailant / malicious attack: coverage developed to address violent attacks which do not meet the coverage trigger requirements under traditional Terrorism polices, i.e. political, religious or ideological motivation. Initially created to respond to the shooting events which occur within the United States but interest in the coverage has seen an increase in other parts of the world including Europe.

For risk analysis and policy check please contact GrECo Specialty

Risk analysis is very important to understand all possible scenarios in order to create a tailor-made solution. The aim is to minimize the impact of a loss event. We can help you to analyze what might happen after a terrorist attack, political unrest or war. Typically, Terrorism and Political Violence risks are excluded from Property & Construction policies although SRCC (Strike, Riots and Civil Commotion) coverage may be offered by insurers with a sub-limit. But those covers are often subject to a special right of contract termination by the insurer at any time.

We recommend conducting a policy check in order to identify and avoid coverage gaps.

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Zviadi Vardosanidze

General Manager GrECo Specialty

T +43 664 962 39 04

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War in Ukraine – impact on insurance

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In the event of war, insurance contracts generally continue to run until their natural expiry date, but coverage must be considered to be very limited, as losses directly or indirectly related to war events are excluded in almost all lines of business.

The war in Ukraine, which has been raging since February 24th, and the response of the Western world in the form of economic sanctions against Russia have so far had a drastic impact on the insurance industry. Insurance brokers who deal with risks located in Ukraine and Russia and whose clients include Russian legal entities or natural persons are therefore obliged to deal with these effects.

Insurance of risks in Ukraine

According to the insurance definition, the entire territory of Ukraine is to be classified as a war zone, and strict sanctions also apply to the territories of Crimea, Luhansk and Donetsk.

In the event of war, insurance contracts generally continue to run until their natural expiry date, but coverage must be considered to be very limited, as losses directly or indirectly related to war events are excluded in almost all lines of business. A grey area also arises in the case of losses that remain still covered, as obligations as a prerequisite for payment by the insurer cannot possibly be met. This will have to be assessed on a case-by-case basis.

Insurance companies outside Ukraine are not prepared to renew insurance contracts or write new business in view of the war situation and the associated imponderables for contract performance. Insurance companies based in Ukraine are currently operating in emergency mode and can only provide a very limited service. It must therefore be assumed that there will be great difficulties in providing proper insurance cover in Ukraine.

Insurance of risks in Russia

Russia itself is not a war zone, existing coverages and contracts are therefore in principle fully valid. However, Russia is affected by sanctions imposed by the UN, the EU, the USA and Great Britain, which include a ban on insurance services for certain persons, companies and entities as well as certain goods and productions (sectoral sanctions). These sanctions must be complied with by all citizens of the respective issuing states or communities of states under personal threat of punishment.

While it cannot be the task of the insurance broker to advise his clients on the sanctions associated with the delivery of goods or financial transactions, it is part of his service commitment to provide information on possibilities for insuring risks, insofar as these are legally permissible in the light of the sanctions, and to take appropriate measures to obtain insurance cover.

In addition to the sanctions briefly mentioned here, all Western insurers and reinsurers have now decided not to offer any new capacity to Russian insurers. The Russian Federation reacted to this at the beginning of this week and, for its part, has banned Russian insurers from cooperating with foreign partners – i.e. insurers and insurance brokers – from “unfriendly countries”, including all EU members, until the end of this year. Thus, Russia is isolated from the international insurance market. The major international insurance brokers have subsequently withdrawn from Russia, and insurers with subsidiaries in Russia will most likely follow.

If the interests of EU-domiciled clients in Russia now require insurance cover, the only recommended course of action is for the respective company representatives to contact a Russian insurance broker on site, who can then obtain the required cover. This is because from an EU perspective, insurance brokers, as well as other companies, are not allowed to contact most Russian insurers because they are on the sanctions list as described above. On the other hand, the Russian insurance market consists of several professional insurers, which are now backed by the Russian state reinsurance company, so that common insurance coverage seems to be available. However, it should be borne in mind that insurance is only possible in rubles, lower sums insured than those needed could only be obtained and the financial strength of these insurers will also suffer in the future as a result of the sanctions.

It is currently still being examined whether capacities for Austrian interests in Ukraine and Russia are available from Austrian or Western insurers within the concept of balance sheet protection (so-called FINC clause); expectations must be classified, however, as rather limited for the time being.

Insurance of Russian interests within the European Union, the UK and the US

The sanction regime outlined above also requires the verification of Russian interests in Western states. The media have already reported confiscations of the property of oligarchs on the Mediterranean or in Great Britain. In this sense, the provision of insurance in the EU, the United Kingdom and the United States to sanctioned persons or entities is also prohibited. If sanctioned persons are found in an existing portfolio, the insurance broker must also withdraw from these persons or entities and terminate the business relationship, preferably in consultation with the insurance companies concerned. In case of doubt, institutions such as the Chambers of Commerce or the Ministry dealing with the sanction regime provide information on whether a person or company or entity is subject to sanctions. However, it is expected that a preliminary check will be made by the broker using the published sanctions lists.

Belarus

Although the scope of economic ties with Belarus may be significantly smaller than that of relations with Russia, it can be assumed that, on the one hand, the sanctions will increasingly be applied to this country as well and, on the other hand, the Western insurance industry will completely withdraw from cooperation with local insurers.

Please note that all information is based on the current state of developments in this military conflict and changes may occur at any time.

The article is written by Andreas Krebs.

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

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Business travel insurance in the event of war – “passive war risk” and evacuations

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Even if the “passive war risk” is covered: the crucial question is whether insurance claims can be made locally in an area touched by war and which service can be provided by the insurer.

The main purpose of business travel insurance, just like private travel insurance, is to cover emergency medical care and return transport home as well as necessary assistance provided by the insurer, like medical evacuation in an emergency.
In this context, it must again be explicitly pointed out that a political evacuation from an area of conflict is not included.

Dedicated cover for “passive war risk” and additional modules

Some business travel insurers also provide for coverage of the “passive war risk” in their insurance wordings. However, this coverage is not common practice. “Passive war risk” means that a (business) traveler is unintentionally, suddenly and unforeseen confronted with military action and its consequences. As long as the traveler does not actively take part in a war (or in riots, etc.), he is also covered in the event of this “passive war risk”. In order to “mitigate damage” (often a separate provision in the conditions), he must endeavor to leave the region of conflict as fast as possible, if he is able to do so.

If the insurance tariffs include an additional module to cover interruption and/or rebooking of a journey in combination with an assistance module, this assistance can provide appropriate support, even if there is no medical emergency. When there is also a travel cancellation insurance module, the travel costs will be reimbursed, at least partially and up to a certain limit. The “passive war risk” may or may not be included for such additional modules, depending on the insurer.

Repatriation and medical care on site

Even if the “passive war risk” is covered: the crucial question is whether insurance claims can be made locally in an area touched by war and which service can be provided by the insurer. What are the actual conditions on site? A repatriation in a very serious medical emergency by an ambulance jet is in fact made impossible by the situation of war. This is the hard practice and reality. For instance, the Ukrainian airspace is currently closed to civil air traffic. This means that patient transport by plane is currently not allowed in this area.

Appropriate emergency medical care in a regular hospital is also in question, and local transport there may not be possible. Insurance service based on local support can therefore no longer be guaranteed in war zones.
The “passive war risk” is also an issue in pure accident insurance (payments for the consequences of an accident – permanent disability and accident costs): some insurers include this special clause, some not.

How can a service be offered for political evacuations from regions of conflict?

There are special service companies which, in addition to other advisory service, can also carry out political evacuations. Here, too, GrECo works together with a cooperation partner. Depending on the business travel insurer, our cooperation partner can also take over assistance services.

Unfortunately, there are more and more areas of conflict worldwide. Since employers are generally fully liable for the well-being of their employees on business trips, in addition to business travel insurance to cover emergency medical evacuation measures, there will have to be considered political evacuation measures as well. As the events in Ukraine show, one cannot rely on the expectation that there will always be enough time to leave an area of conflict.

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Guido Teutsch

Specialist Employee Benefits

T +43 5 04 04 – 247

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War in Ukraine: Cargo insurance and political risks

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The dangers of war and strike are excluded in the “all risks” coverage, but they are usually included in the individual policies with additional clauses.

Trading companies and manufacturers of goods have their deliveries insured in a global transport insurance policy based on turnover. The scope of coverage is usually “all risks” according to the Institute Cargo Clauses or similar wordings.

The current situation in Ukraine is classified as war since Russia has occupied Ukrainian territory with a regular army.

Insurance in case of war and strike

Basically, the dangers of war and strike are excluded in the “all risks” coverage, but they are usually included in the individual policies with additional clauses. This extension of cover for these political risks follows the definitions from the insurance conditions of the English insurance market, like the general conditions.

The insured risks of “war” include for instance war, civil war, revolution, rebellion, insurrection, civil strife and confiscation resulting therefrom. The insured perils “strike” include damage to the transported goods caused by strikers, locked-out workers or persons taking part in industrial disturbances, riots or civil commotion, terrorists or persons acting with political motives. Material damage to the goods that occurs directly as a result of the above-mentioned risks is insured.

The additional clauses mentioned can be used to cover the risks of “war” in sea transport and international air freight (“airborne” and “seaborne”), but never in the case of land transport, due to the accumulation risk for the insurer.

The risks of strikes are insured by the relevant clause for carriage by any means of transport, including land.

Termination by insurer possible

However, insurers have a special right of termination in zthe policies for political risks. According to this, the insurer can terminate the contract with a notice period of 48 hours or 7 days depending on the applicable clause in the current contract. However, for deliveries that began prior to the effective date of termination, political risk coverage will remain in place for the entire shipment.

To date, cancellations of political risks have been declared as follows:

  • Transportation within Ukraine, Russia, Belarus as well as land and sea areas bordering Ukraine within a range of 200 km from the land/sea border with Ukraine or;
  • For all transports worldwide, but, after the notice period, with the re-inclusion of worldwide transports, excluding, however, the Ukraine region and the area less than 200 km from the country border with Ukraine and the whole of Russia.

Due to the current situation, insurers are canceling the additional clauses for war and strike both for international contracts and for policies existing in Ukraine and Russia itself.

If the insurer terminates the risks of war and strike, GrECo will, if required, negotiate with the insurer of the policy or try to find a solution for the re-inclusion of maritime and airborne transport (e.g. for sea journeys in the Black Sea and the Sea of Azov) on the international insurance market. Depending on the war situation in the respective transport relation, coverage will be possible, as things stand at present, with additional premiums determined by reinsurers.

If the political risks are terminated, does the coverage from the insurance contract remain in effect for the remaining insured risks?

Yes. If the goods are damaged e.g. in a normal traffic accident of the means of transport, there is cover. However, the policyholder must provide the insurer with proof that the damage was caused by the accident and not by a war event.

In the current situation, are rail transports from Asia to Europe – via the Silk Road – still insured?

Yes, they are insured; but without cover for “war risk on land”; if the insurer terminates the risk of strike, the protection for these losses also ceases.

We recommend that the policyholder immediately informs GrECo if his forwarding agent reports an out-of-hours stopover during transport. We bring this to the attention of the insurer and thus fulfill the contractual obligation.

Damage or additional costs that occur due to delays in the journey as consequence of war events (e.g. the truck is not allowed to cross the border and therefore cannot continue the journey) are not insured.

The sanction clauses of the insurers for deliveries apply unchanged, according to which there is no cover in the event of a violation of sanctions and embargoes; due to the tightening or expansion of sanctions (EU, USA, UK) as consequence of the Ukraine war, this circumstance must be given special consideration.

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Herbert Mayerhofer

Competence Center Manager Transport

T +43 664 440 28 71

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