WTW Political Risk Leader: Political Risk Insurers Bracing for Ukraine, Russia Claims
Property damage, forced abandonment, currency and convertibility are among the political risk coverages potentially exposed, said Laura Burns, SVP, US Political Risks, America, WTW said during an interview with Insider Engage at RIMS in San Francisco.
Q: The hot topic on everyone's mind is the Ukraine Russia situation. What are the political risk coverage implications of that?
Laura Burns: Certainly it’s a very distressing crisis that we're all watching unfold at the moment. Perhaps a bright spot is that political risk insurance is intended for crises exactly like this one. In the here and the now, what we're experiencing with our clients are a couple of key things. And then I can talk a little bit about some others that were keeping an eagle eye on.
In the here and the now, the first with respect to Ukraine are physical damage to property. As you can imagine, in Ukraine, with the raids that have taken place, clients have had physical damage to their property. The other situation is what we call forced abandonment coverage. And that is a non damage situation, whereby a client operating in such a country as Ukraine doesn't have physical damage to their assets, but because of the security situation in the country can effectively no longer operate a location or the entire enterprise in the country. We have fielded many of these notices of circumstance. And, unfortunately, with the analysts expecting this to potentially be a protracted crisis, we do intend for potentially those to crystallize.
With respect to Russia, of course, we have many clients, many multinationals with investments in Russia. Many of them, as we've all seen in the press, have signaled that they're going to potentially exit the country, either in solidarity with Ukraine, or due to supply shortages or a variety of reasons. The Russian government has laid the groundwork to potentially — or they've signaled they're laying the groundwork — to potentially expropriate the assets of those companies who have signaled they're going to exit the country. Those could be hundreds of millions of dollars in the sense that several companies have significant investments there. So that's something we're watching develop. The other is what we call currency and convertibility, where a client may be trying to repatriate dividends, or other such payments and including divestitures, or if they were trying to exit the country, and given the economic plight that Russia is in at the moment — I've saw this morning that they have technically defaulted on their debt, because they don't have access to the foreign reserves — they have signaled that they're going to close that foreign exchange window or impose some sort of capital controls. Clients may also have issues getting money out of the country. They may have money, but essentially not have ability to access it. So those are that's a range of perils are watching.
The last is inability to import or export and contract frustration. Clients who have contracts with companies or with the government in Russia, due to the sanctions that have been imposed, will potentially not be able to close out on those contracts or be able to import or export as they as they originally wished. A bright spot is that there is coverage for these clients. And certainly those that secured the coverage are locked in to those programs. And we are starting to face claims.
Q: What are some of the important terms and conditions that people should be aware of?
We’re at RIMS and speaking with so many clients, and so many prospects. And it's interesting to me, the range of education level on this coverage. And something important, I think for everyone to know, is that the coverage is noncancelable. Clients that secure the coverage that the policy terms can range actually out to 20 years. So once a client has engaged in a policy, a multi-year policy, the carrier or group of carriers would not be able to cancel, cancel that coverage for the whole policy term, nor would they be able to raise rates. The clients who did secure that coverage — even upwards to six months or a year ago —are enjoying the benefits of that now, where they're locked in with no worry about cancellation, and no worry about a rising rate.
Q: What are some of the ripple effects?
Something else that we're keenly watching at the moment is what are the ripple effects of this crisis around the world, the reverberations that could come of it. [Speaking] with so many clients, the first indication may be that if they're not in Russia, Ukraine, they may feel insulated. Something to watch for is that Russia and Ukraine supply a huge percentage of the world's wheat, and some other vegetable oils and fertilizer, particularly to the Middle East and Africa, but really, around the world, even Latin America, Asia, etc. The concern, if you look at some of the graphs and charts and figures, regarding the food index price from the UN, that going back to 2011. We all remember the Arab Spring. What really sparked the Arab Spring, of course, was they wanted more social and political freedom, etc. But also bread that many of the food prices had skyrocketed, and many people were hungry. The concern, drawing a parallel to today, is that if Ukraine, one of the world's breadbaskets, is unable to supply that wheat and the vegetable oils and fertilizer — also coming from Russia — might we see a spark in social unrest in from several countries in the Middle East Africa, Latin America and Asia.
Q: What are some best practices that companies should keep in mind right now?
We're speaking to all clients and prospects about now is get out the policy, read it, talk with your broker, it's very important that if there is a circumstance that could give rise to loss that we notify the carrier right away, usually within 30 days, depending on how your policies is worded. Certainly within 30 days of the insured being aware, 30 days of the risk management team being aware. We want to protect the ability for them to claim it or that policy, should they choose to do so. So early notification is key. But we'd also encourage risk managers to socialize that policy cross functionally within their home office. So really engage, if they haven't already, with finance, legal government affairs and their security teams so that all teams are aware of the policy and if there’s a situation, that those situations bubble up to the risk manager sooner rather than later. And lastly, they may also want to engage those teams in the respective host countries to also make them aware that they have they have this coverage, because what can happen is sometimes those teams in the foreign countries or other cross functional teams may not know that they've procured the coverage, and we wouldn't want a situation to fester. We want to we want to really get any of those circumstances up to the risk manager and home office as soon as possible.