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Monte Carlo 2022

A 'giant wake-up call'

Russia vs Ukraine flag on cracked wall, concept of war between russia and ukraine, silhouette of soldiers on russia vs ukraine flag

As the Russia-Ukraine conflict ploughs on, corporations are seeking insurance-backedvsolutions to manage geopolitical risk across the rest of the world

Russia’s war against Ukraine is likely to alert large insurance clients to wider perils while offering the insurance sector new opportunities.

That prediction comes from Laura Burns, Willis Towers Watson’s Washington-based risk product leader for the Americas. “The Russia-Ukraine crisis has been a giant wake-up call for many corporate leaders,” Burns says.

As geopolitical risk has moved to the top of corporate enterprise risk management strategies, Burns says, WTW has been flooded with “rest of world” inquiries from companies suddenly worried about what could go wrong for them in such countries as China.

These companies, Burns suggests, “have now just woken up to this knowledge that geopolitical risk can certainly move the needle from a corporate perspective.” This realization, she adds, has pointed such organizations to “insurance-backed solutions” as the primary means of managing these risks.

The perception of risk, Burns says, can be affected by a company’s decision that it cannot shy away from certain markets, despite what it might see as disadvantages in being there. There also might be added – or reduced – risk in entering a joint venture, she says. While having a local partner has traditionally been seen as beneficial, Burns says, it would not be helpful if the overseas partner, accustomed to operating comfortably from “30,000 feet,” suddenly finds itself forced to take sides in local disputes. WTW, she notes, has seen some of these tensions in Hong Kong.

Underwriters and brokers are intensely interested in the agreement between Ukraine and Russia to allow the Ukrainians to resume exports of grain, interrupted since February. The first cargo, of more than 22 million tons aboard the Sierra Leone-registered Razoni, left a Ukrainian port in the Odesa region on August 1, bound for Istanbul in Turkey for a treaty-mandated inspection, with a final destination in Lebanon. The Financial Times, which reported that another 16 ships were waiting to leave Ukrainian ports, said Ukrainian officials were optimistic that the backlog would be cleared within weeks. António Guterres, the UN secretary general, said he hoped the shipment would be “the first of many.”

According to the Washington-based think tank Carnegie Endowment for International Peace, Russia will gain from the deal by easing its own food supply problems and by profiting from the current high price of grain on world markets. According to the endowment, Russia made $11 billion from grain exports in 2021.

“More importantly still, the release of that volume of grain onto the market should bring down global wheat prices, sparking a chain reaction and lowering other food prices too,” the endowment said in a statement.

Russia and Ukraine have historically supplied nearly a third of the world’s wheat and barley, the endowment said, noting the concern over the recent blockage of supplies from Ukraine that was expressed by such varied countries as Turkey, Egypt, Iran, Saudi Arabia, and Israel.

The insurance sector is affected by the same uncertainty about the eventual outcome in Ukraine as everyone else, Burns says. Might, she asks, the conflict end with a Western victory? Or will some Ukrainian territory remain under Russian control? “It doesn’t look as though this crisis is going to end anytime soon, unfortunately,” she says. “Is it going to end in a treaty or ceasefire that people can have confidence in?”

Recalling the Marshall Plan in Europe after World War II, Burns predicts a post-war reconstruction role for such development agencies as the United States Agency for International Development and the International Finance Corporation. She also foresees an insurance role for government agencies that write political risk cover. Their focus, Burns says, will be less on profit and loss and more on supporting new investment.

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