Marsh McLennan, a global leader in risk management services, is working on war insurance for cargo ships transporting grain through Ukraine’s Black Sea corridor, and now negotiating coverage for potential civilian flights from Ukraine once the sky is safer.
They are not the only ones in Ukraine working in this field, but clearly the major newsmakers.
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Civilian commercial aircraft may fly from Lviv starting in January 2025 if politicians and the military allow, Senior Marsh McLennan partner Crispin Ellison told Kyiv Post in an interview during the Kyiv International Economic Forum.
There is no final decision yet despite what social media wrote – Ukraine’s leaders and the war situation will be key to determine whether to reopen the sky. Insurers are only showing the signal they are getting ready.
“There’s been a lot of preparation done towards opening the airport. And I think if the situation is right, the military situation is right, and the government of Ukraine makes that decision. We could be operating by then,” Ellison told Kyiv Post.
The hope that airports may reopen is being pushed by representatives from international airline companies, global and national carriers, low-cost airlines and Ukrainian companies. “There’s plenty of interest there. Ukraine was a busy aviation market until February 2022,” Ellison said.
EBRD, Aon Launch War Risk Insurance to Cover Ukraine’s Domestic Cargo
The sky may be reopened for passenger flights with a low frequency at first “while we prove the system and build confidence.” The flight tickets will be at first more expensive when the risks are less known. This might be due to high premiums for war insurance. But airfares will go down as the flights become more frequent.
“The work that we have done shows that premiums should be affordable. It won’t be cheap, but they should be affordable. And the airlines are certainly aware of what those premiums are,” Ellison said.
Ellison believes that Lviv airport may be “a stepping stone,” but it will be a true success story to reopen Boryspil airport in Ukraine’s capital.
Will Russia strike the airport if Ukraine reopens it? “I have no idea. That is a decision for Russia… The military will, I have no doubt, have their plans to deal with that eventuality,” Ellison replied. “Tel Aviv Airport has been attacked more than Lviv airport,” he added.
Not to mention Lviv airport is closer to the Polish border, enough for a “short operation” of planes arriving, unloading, loading, turning around then flying away into the European sky again.
War Insurance Returned Global Markets to Ukraine’s Export
Russia’s invasion of Ukraine made it impossible to travel by air after 2022. But Ukrainians fought back to regain control of the sea, facilitating the grain corridor without Russian help.
The UN initially persuaded Russia to allow the establishment of the grain corridor, but Russia withdrew from the initiative and started striking vessels transporting cargo.
“Shipping all stopped,” Ellison said. Insurance levels increased to an “unaffordable” 5% per voyage or sometimes higher.
Ukrainian forces then regained control from Russia of several gas and oil offshore drilling platforms near Crimea, which enabled them to control the grain corridor again. The Russians had been using the radar placed on the platforms to detect Ukrainian seaborne cargo vessels and use the information to target grain shipments.
After Ukraine liberated the drilling platforms, Marsh McLennan launched a facility to provide affordable insurance for exports from Black Sea ports – Unity – together with the Ukrainian government, the Export Credit Agency of Ukraine, Ukreximbank, Ukrgasbank and DZ Bank.
Lloyd’s of London became the underwriters. Since then, insurance rates in the Black Sea now are “around a fifth of what they were”. Even though Russia again attacked Odesa ports with missiles, it did not disturb the market.
“The normal commercial market has returned to Black Sea traffic,” Ellison said, as insurance rates “are less than those in the Red Sea at the moment.”
Standard Insurance Should Operate in Ukraine Apart From War Insurance
War insurance for planes or ships is a niche product – insurers globally should switch to general insurance to help Ukraine’s business recover after the war, for example insurance for construction or from natural disasters.
Are global insurance companies ready for it? Not yet, and it’s not only because of the internal market problems.
“Ukraine is excluded under something called the RUB exclusion: Russia-Ukraine-Belarus exclusion. And that is offensive to a lot of Ukrainians. The reason why you don’t reinsure in Russia and Belarus is, if nothing else, because of international sanctions. The reason why you’re not insuring in Ukraine is because you have made a decision not to,” Ellison explained.
Ellison called it “a blanket exclusion” – something he wants to see changed. For this, the global insurance market should “take a more nuanced view of the risks,” not a simplistic approach of “We do not reinsure in Ukraine,” he told Kyiv Post.
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