Conflict in Ukraine: Lessons for the marine insurance market

acknowledge the evolving risk landscape and note that what is required for the market’s ability to function successfully both today and in the future may be markedly different to what worked in the past.

More than a year into this tragic war, and after just one annual reinsurance renewal cycle, there are already lessons to be learnt in how we can improve as a (re)insurance marketplace to help future-proof our products so that they remain able to meet the challenges thrown up by any future conflicts.

Fourteen months since the start of Russia’s invasion of Ukraine, the effects on global supply chains have been felt across the world, from the industrialised west to Africa and other emerging markets.

With 90% of traded goods transported by sea, the marine insurance market has been impacted but has also assisted in global efforts to keeping trade moving.

While focusing on the wider repercussions of this war we must remember that the harshest effects by far are being felt by the people of Ukraine. As Olena Zelenska, Ukraine’s first lady, commented in a BBC interview six months into the fighting, while the UK’s population is “counting pennies” as energy costs soared, Ukraine is counting casualties.

The response of countries indirectly affected by war is a challenging balance for leaders who must weigh up humanitarian considerations with potential political and economic consequences abroad and at home. However, the importance of sustainable global financial markets, including (re)insurance, that can absorb the shock of war and provide the hope of economic viability in more peaceful days ahead, is a measure of a mature and well-functioning economic system.

Cogs Of Global Trade

The London insurance market is in many ways at the heart of the machine, with a responsibility to help keep the cogs of global trade moving by ensuring that coverage is available to protect assets when stakes are high and to be there to pay claims when losses occur.

For marine (re)insurers to continue doing this, we need to

The time to adopt better data and analytics is now. We all know the major role that data and digital tech will play in improving our understanding of risk, but as a market, whether that be as a (re)insurer, (re)insurance broker or customer, we need to knuckle down and harness it sooner rather than later.

Through the past decade there has been undoubted progress with many of the above parties and insurtechs developing technology in this sphere. However, as a market, have we moved fast enough in adopting data driven solutions?

The squeeze in (re)insurance capacity for exposures in the Black Sea and other areas because of the Ukraine conflict should be the wakeup call for the market to reinvigorate itself.

Further research, investment and adoption of data and technology so that underwriters can accurately track vessels and cargoes in real time would free up capacity in restricted areas and allow the market to better service its customers.

Improved Communication

There are obstacles to overcome, particularly to do with managing proprietary data, but none are insurmountable with good communication.

Insurers need better communication with customers. As the need grows, greater use of automated technology that enables (re)insurers to extract more data to help them model and price risk more accurately is unlikely to be too far into the future.

In the meantime, customers and their brokers that are prepared to work with underwriters to adopt new working practices to provide enhanced, and more timely information, ultimately will allow the market to provide better solutions for their particular needs.

At all points in the (re)insurance value chain, the new working practices will need all parties to communicate their requirements and have the confidence to challenge and ask difficult questions.

This may become even more pressing if escalation of geo-political tensions elsewhere in the world leads to a contraction in (re)insurance supply in more areas than already face a shortage of available reinsurance. Insurers need to improve communication with their reinsurers. After a particularly challenging 1/1 renewal season many insurance carriers are now in a position from which they will have different outwards insurance coverage – and presumably different pricing – from their reinsurance panels, particularly for exposures in Russia, Ukraine and Belarus (RUB).

Leadership Challenges

Indeed, the 2023 reinsurance renewals saw a new issue emerge in the marine world – the move away from the historic norm of reinsurers coalescing around one leader who sets the wording and pricing. This is obviously not ideal for primary insurers but perhaps it is a scenario that could have been predicted a few weeks or indeed months in advance of January 1.

The magnitude of the exposures and potential claims brought to light by the Ukraine conflict, in several specialty insurance lines and not just marine, mean that many reinsurance underwriters are having to adhere to board mandated edicts regarding current and future assumed exposures and contract wordings.

While contract language on sanctions matters needs to be watertight, in previous years there has been latitude granted to reinsurers’ line underwriters to negotiate individual clauses. For 2023 that has seemingly been taken away from many for RUB clauses.

While in most cases there is negligible difference in coverage afforded by the wordings, inevitably in certain scenarios carriers may find a potential for discrepancies in coverage afforded by different reinsurers on the same panel.

Perhaps in more certain times ahead, we can hope for discrepancies in respect of RUB exposures to lessen. However, with sadly no prospect of an imminent end to conflict in Ukraine and given the rise of global geo-political tensions elsewhere, primary insurers are now acutely aware that when reinsurers’ boards issue underwriting edicts there is minimal room for their underwriters to negotiate wordings. Greater clarity in communication within the market will help all parties to continue to keep global trade flowing.