UK prime minister Rishi Sunak has proclaimed a new war risk insurance framework to be “a huge step forward” at a two-day Ukraine Recovery Conference held in London from 20-21 June 2023. His words underline one of the main sticking points for the recovery of Ukraine’s economy and the country’s reconstruction, which the World Bank estimated in March will cost at least $411bn over the next ten years. 

Without insurance, much needed private investment will not flow at the required levels for the rebuilding of Ukraine’s damaged industry, housing, transport and energy infrastructure. The multitude of war risks facing businesses, their workforce and assets in Ukraine makes it very difficult for them to assess the commercial viability of projects.

“If we can take that risk off the table that is hard for [investors] to quantify, it should mobilise an enormous amount of private capital,” argued Scott Nathan, the CEO of the US International Development Finance Corporation (DFC), which has extended around $529m of political risk insurance to businesses operating in Ukraine.

The UK announced its London Conference Framework, which outlines existing and new instruments that insure against political- and war-related risks, at the event aimed at reassuring investors by addressing the gap in insurance coverage for businesses operating in Ukraine. Another collaboration between British insurance firm Aon and insurance marketplace Lloyd’s, as well as Austria's Vienna Insurance Group (VIG) — one of the largest insurers operating in Ukraine — will "fast-track" access to foreign reinsurance capacity in the country, according to a Lloyd’s statement.

Despite the ongoing war, Ukraine’s insurance market continues to function with about €1bn insurance premium written in 2022, according to Lloyd’s. However, none of this private insurance will cover war or political violence, which is one of the main concerns of prospective investors in Ukraine while the war continues.

“The needs for political risk insurance are massive, both now and in the future,” said Olga Sclovscaia, the regional head of Europe and Central Asia for the World Bank’s Multilateral Investment Guarantee Agency (Miga), which has issued $142m of new guarantees in Ukraine since Russia’s full-scale invasion began in February 2022.

The UK is providing £20m to Miga’s Sure Trust Fund, adding to the $23m already contributed by Japan, which will help de-risk investments in projects addressing Ukraine’s immediate reconstruction needs. In 2023 alone, the World Bank estimates that Ukraine will need $14bn for priority repairs. Through the Trust Fund, Miga has already provided €40.85m of guarantees to ProCredit Ukraine to enable it to continue providing banking services in the country.

The US, Germany and France have all announced their own national insurance initiatives. Meanwhile, Poland said this week it has prepared a law for insurance coverage for investment activities and the transport of goods to and from Ukraine, without giving further details.

While these public efforts are welcomed, the war-related risk mitigation tools on offer by the private sector remain virtually non-existent. Mark Costin, the commercial director of London-based insurance technology firm Insurwave, tells fDi that insurers will only re-enter war zones when they are able to properly assess risk and apply an appropriate quote to their underwriting. 

“The insurance market exists to provide war cover, except in areas where there is a war,” he explains. The challenge now is for the initiatives led by governments, development finance institutions and multilateral development banks to pass over to the private sector.

“Nobody on this stage wants a permanent solution that is public-driven as opposed to private,” said Eric Andersen, the president of Aon, during the conference in London. He added that Aon’s partnership with Lloyd’s and VIG will provide access to capital, but also enable the “market to learn as they begin to rethink how they approach providing private reinsurance capital for the big topics of political violence and political risk”.

Beyond the efforts of international organisations, the Ukrainian government has also rolled out multiple initiatives, including a $500m fund for the continuation of grain exports from its ports. The government also recently passed a draft law in its first reading that will allow the country’s national export credit agency to provide investment insurance. 

Sergiy Tsivkach, the CEO of UkraineInvest, tells fDi that it is like a “chicken or egg situation” to get access to insurance, since companies still need a viable investment project: “These projects should come not only from Ukraine, but from international companies that are interested in entering Ukraine.” 

Volodymyr Zelenskyy, Ukraine's president, made this message abundantly clear by telling the London summit that "we must move from vision to agreements, and from agreements to real projects". Mr Tsivkach notes that the planning of new investment projects can take up to 18 months, meaning companies can begin to explore opportunities now. “You don’t need to get [insurance] cover while you plan”.

Several companies are already doing this, including Irish building materials company Kingspan, which plans to open a €200m technology campus near Lviv. 

But as the risks to staff safety and damage to assets persist, collaboration will be critical to give confidence to private investors. “Given Ukraine’s huge reconstruction needs, it will require efforts of many actors in the insurance industry, private and public,” says Ms Sclovscaia of Miga.