Aon unveils $350mn war cover scheme for Ukrainian businesses

Insurance broker Aon has created a $350mn scheme with a US development agency to cover Ukrainian businesses against war risks, in the latest public-private effort to bolster the country’s wartime economy and pave the way for reconstruction.

War risk insurance covers businesses against losses incurred as a result of conflict. After paying out claims for bombed-out buildings and other damages from Russia’s full-scale invasion more than two years ago, foreign insurers and reinsurers pulled back from offering such cover in Ukraine. 

The deal with Aon, a US-listed professional services group that is one of the world’s biggest insurance brokers, will help Ukrainian companies secure protection against war risks and is a boost for Kyiv’s wider efforts to persuade foreign investors to return to the country.

Aon president Eric Andersen presented the new facility as a “groundbreaking” step to encourage local insurers to offer war risk policies to businesses across the country, and to draw much needed investment for a country whose eventual reconstruction effort is estimated to cost $1tn. 

“People won’t do [rebuilding] unless they have some protection against war risk,” he told the Financial Times from Berlin, where the scheme is being presented at a two-day Ukraine recovery conference. Kyiv has used the event to appeal for billions of dollars of aid for its stricken energy sector.

The scheme comes after Ukraine last year agreed a public-private insurance initiative for shipping, providing war risk policies to vessels transporting grain and other commodities from its Black Sea ports.

Scott Nathan, chief executive of the US International Development Finance Corporation (DFC), which has worked with Aon on the scheme, said it was a “critical moment” to build investor confidence in Ukraine. 

Insurers typically exclude war-related claims from most policies, forcing businesses to take out separate “war risk” or “political violence” policies to have some protection.

The first part of the scheme is a $50mn reinsurance facility, where DFC will act as the reinsurer to local Ukrainian insurers to allow them to offer war risk policies to businesses. One insurer taking part in this scheme is ARX, a Ukrainian subsidiary of Canadian insurer Fairfax Financial.

There is then a separate $300mn of war risk cover specifically for planned projects in the healthcare and agriculture sectors, Aon said.

Penny Pritzker, the US special representative for Ukraine’s economic recovery, said a “robust insurance market was essential to attracting investment in the country”. Pritzker was involved in talks about the scheme.

Taras Kachka, Ukraine’s deputy economy minister, told the FT the scheme was an “extremely important” step for the country’s private sector.

Although Ukraine wanted to see an expansion of the Black Sea insurance scheme and support provided by public bodies in other countries, Kachka said it ideally wants the private market to work “without the state, because the insurance market is very powerful”.

Aon’s Andersen said there was an opportunity in western Ukraine, which has not borne the brunt of Russian attacks, to provide cover that can get projects going immediately.

By drawing in more private capital now, he added, “when peace does come to Ukraine, they are ready [and] we are not starting from scratch.”