In the negotiations taking place on contract renewal, it has turned out that the international insurance industry is no longer willing to agree on coverage for Russia and Belarus, and the options for coverage in Ukraine are also very limited.

Since it began, the Russian aggression against Ukraine has led to numerous economic changes, the scope of which still cannot be fully assessed.

The insurance industry’s core business was affected by the consequences of the war from the start. In the beginning, there was the withdrawal of “Western” reinsurers from the Russian market, followed by the self-isolation of the Russian insurance market and the interruption of cross-border payment flows due to the declaration of martial law in Ukraine.

Both markets – Belarus plays a subordinate role here given the low level of international trade and investments – were thus isolated, but insurance cover was still available locally, albeit with significantly reduced capacities, especially in Ukraine.

It was therefore reassuring that international insurance programs were honoured during their remaining contract period in 2022 and coverage was provided for all three states involved in the war via the Financial Interest Clause of the master contract.

Territorial exclusion is an issue during insurance contract renewal

Exclusions for International Re/Insurance Coverage for Russia, Belarus & Ukraine Risks

In the negotiations taking place on contract renewal, it has turned out that the international insurance industry is no longer willing to agree on coverage for Russia and Belarus, and the options for coverage in Ukraine are also very limited.

It is, of course, the first time in decades that a war involving a major power is taking place that is being opposed and indirectly fought by other major powers, and this is probably the reason why insurers have not only focused on the exclusions of coverage briefly described below in connection with war and the imposition of sanctions but introduce a territorial exclusion for Russia, Belarus and Ukraine.

This attitude is unique and must therefore be examined critically at this point. The exclusion clause, as also acknowledged by reinsurers, represents the last link in a three-part exclusion chain, a simple solution that avoids any discussion concerning a risk located in one of the countries.

Traditional: the War Exclusion Clause

Let us now take a closer look at this three-part set of exclusions.

The traditional precaution of the insurer against having to pay claims which would by frequency and amount destroy any insurance portfolio and might lead to a serious threat to the continued existence of the insurance company is the war exclusion anchored in the General Conditions, above all for property and liability insurance, although differently defined.

In fire insurance (including business interruption!), the clause says that “damage caused by the direct or indirect effect of acts of war … including all acts of violence by states …” as well as “all military or official measures connected with the acts mentioned …” are not covered.

According to a newer definition, liability insurance does not provide insurance cover “for damage caused by acts of violence by states or against states and their bodies, acts of violence by political and terrorist organizations, …”.

Both definitions are therefore very broad and general and will be checked by the insurer in the event of a claim in Ukraine and, if necessary, applied to decline payment of a claim. However, the burden of proof lies with the insurer – despite the contrary, contestable definition in property insurance that can sometimes be found. In any case, the insurer is protected against claims for war damage.

Sanctions prohibit insurance in certain areas

Exclusions for International Re/Insurance Coverage for Russia, Belarus & Ukraine Risks

After the war broke out, the EU as well as the US and UK, responded with economic sanctions against Russia, specially designated Russian citizens and entities. The eight packages of sanctions of the EU now in existence are related to export and import restrictions for precisely named goods recorded in lists.

Compliance with the sanctions is binding for legal and natural persons within the EU, disregarding them or circumventing the EU is a punishable offence.

It follows that no insurance cover can be granted for sanctioned persons, organizations and goods, including their production, trade with them and transport.

In recent years – long before the war in Ukraine – insurers have therefore formulated sanctions clauses that exclude coverage for activities and goods subject to sanctions.

The insurers’ exposure is thus further reduced since some sectors and products are now subject to sanctions for Russia.

However, it must also be emphasized that the EU has expressly stated that there must be no product sanctions for food, sanitary articles, medicines and other products of humanitarian need.

Although sanctions intend to affect the Russian economy, they should not contribute to punishing innocent citizens. It is therefore expected in the dialogue between insurance customers and insurers that the sanction clause will be checked for its specific applicability in individual cases when the insurance contract is concluded or in the case of a claim.

Territorial exclusion reduces the value of the International program

These two clauses, which are justified and allow an examination of the individual case and represent at least some protection of the insured if a claim is not due to war or in connection with sanctions, are now accompanied by territorial exclusion as a third clause.

Its application means that the insurer no longer has to deal in any way with risks, contracts or claims in any of the countries concerned. It is therefore an a priori refusal of cover, which has only seldom been seen in this form up to now. It has not even been applied to the famous “rogue states”.

Insurance lawyers will object here that there is no obligation to contract in industrial insurance and that the insurance company can refuse to assume a risk at any time.

The legal provisions on the increase in risk even suggest that an insurer does not have to assume a risk that it considers to be high. This is correct, but for reasons of fairness alone, an insurer who is willing to insure known risks worldwide as part of an international insurance program should not start excluding individual countries.

If such an example catches on, it’s not far to the erosion of the insurance program, when other countries that are problematic for whatever reason, like China, Iran and whoever, are put on the exclusion list.

Another often-heard argument for this exclusion is compliance: it is not appropriate to continue to support the Russian economy and this also applies to insurance and reinsurance.

As with other measures, however, the one who ultimately suffers is not the warring state of Russia, but the policyholder who has gone to the countries of Eastern Europe with his activities. He is now told that he can insure his risks locally, which is a very weak alternative given the limited capacities in Russia or the scarcity of insurance sums in Ukraine. Comparable to accepting a high degree of underinsurance.

Individual solutions required

Nevertheless, we are confident that in individual cases it will be possible to obtain coverage in the country of the master treaty when it comes to risks with a humanitarian context, when the risk locations are not directly in war-affected areas of Ukraine, when the volume of insurance in one of the states concerned is small compared to the rest of the world, when transports between third countries involving one of the three states have to be insured, etc.

It is worthwhile to negotiate with the insurance industry on an individual basis, at least to arrive at a compromise solution, such as coverage with a review clause in the event of a clear escalation of the war.

The Price Cap on Russian Oil – Implications on Insurance

Exclusions for International Re/Insurance Coverage for Russia, Belarus & Ukraine Risks

Many insurers including insurance brokers will now be able to provide insurance services for Russian crude oil shipments to countries which are not part of the Price Cap Coalition provided that the price of the Russian crude oil cargo from the time it is loaded until it has cleared customs at the port of destination is at or below $60 per barrel.

The EU, G7 and Australia (the “Price Cap Coalition”) have recently introduced legislation and guidance effective 5 December 2022 intended to maintain the supply of Russian oil to world markets whilst at the same time reducing Russia’s earnings from its oil exports (the “Price Cap Scheme”).

Rules for insurance of Russian oil shipments

Insurers, insurance brokers, shipowners and charterers will now be required to check the price of Russian oil cargoes on board ships they own, charter or insure. These checks will take the form of contractual attestations provided by their contractual counterparties stating that for the relevant period the price will not exceed the Price Cap.

A Cargo owner or shipowner or Charterer that intends to transport Russian crude oil cargoes after 5 December will now need to provide its insurance service providers with an attestation that it will not for the duration of the period of insurance carry Russian oil cargoes which have been sold at a price that for the period during the voyage has exceeded the Price Cap. This attestation will be required for all types of Marine insurance.

Insurance cover for the carriage of Russian crude oil loaded after 5 December 2022 and petroleum products loaded after 5 February 2023 is dependent on various insurers complying in full with the requirements of the price cap schemes, including the provision of appropriate attestations.

Insurers will be required to withdraw cover where there are reasonable grounds to suspect that the carried cargo was purchased at a price greater than the price cap..

Price Cap is part of the sanction regime

Exclusions for International Re/Insurance Coverage for Russia, Belarus & Ukraine Risks

Under the Price Cap scheme, those persons that are subject to the jurisdiction of the EU, G7 and other coalition partners such as Australia will be prohibited from transporting and/or providing services (including insurance services) that enable the transportation of Russian origin crude oil and oil/petroleum products unless it has been sold at or below the Price Cap.

The prohibition on services provided by a service provider based in an EU, G7 or other coalition partner jurisdiction extends to shipments by or to third countries that are not part of the EU / G7 coalition and to that extent will have an extra-territorial effect.

Please note that various price cap schemes largely mirror each other but there are significant differences between them.

For example, the period during which the Price Cap must apply to benefit from the EU Price Cap scheme is longer than under the equivalent UK and US legislation. Under the EU scheme even where the oil has cleared customs at the third country destination in circumstances where it then “…becomes seaborne again without being substantially transformed into a different good in line with non-preferential rules of origin. (i.e. without being refined) … the price cap will still apply.”

Again, parties are expected to obtain appropriate attestations of cargo price the nature of which will depend on which Tier they fall into.

The definition of the Tiers by the EU is the same as that adopted by the UK and US with shipowners and various insurance service providers identified as Tier 3 Actors. Parties are required to keep records of Price Cap transactions for five years.

For example, shipowners are considered Tier 3 Actors by all three jurisdictions. As such, a Shipowner must obtain a contractual commitment from its contractual counterparty – usually the charterer – that its counterparty has committed not to purchase Crude Oil or Petroleum Products above the Price Cap. Such an Attestation may be a stand-alone document or included within a wide contract.

Validity of cover as long as Price Cap is respected

Various stakeholders should note that from 05:01 GMT 5 December 2022, insurance cover for Russian Crude Oil Price Cap cargoes is conditional upon the unit price of the Russian Crude Oil supplied or delivered, or being supplied or delivered, being at or below the Price Cap. 

To comply with the Price Cap scheme insurers are required to withdraw cover in circumstances where there are reasonable grounds to suspect that the Price Cap attestations provided are false and/or where the cargo is sold after the voyage has commenced at a price greater than the Price Cap.

Where a breach is identified after loading vessels may be left uninsured and without access to normal banking services for an extended period whilst the authorities determine how best to dispose of the cargo.

First reactions concerning insurance

According to Business Insurance online of December 12th, 2022, Russian insurer Ingosstrakh declined to insure oil cargoes not compliant with the price cap. Insurance will only be available on the same requirements as for the “Western” insurers.

Turkey’s maritime authority said it would continue to block the passage of oil tankers without appropriate insurance letters, adding that the insurance checks on ships in its waters was a routine procedure, with a focus on transit through the Bosporus Strait or calls at Turkish ports.


AUTHOR: Andreas Krebs – Head of Insurance Mediation Services at GrECo

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