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Russia-Ukraine conflict: Long-term risks emerging

Businesses and governments should not lose sight of the indirect consequences of the Russia-Ukraine conflict, which may persist for a long time.
Pen pointing to an inflation chart

Nearly six months into Russia’s invasion of Ukraine, the conflict’s long-term impact is coming into focus. The conflict, which began on February 24, prompted many multinational corporations to voluntarily exit or sever business ties with Russia and triggered a broad set of international sanctions. Now, much of the focus has shifted from specific developments in Ukraine and Russia to economic inflation globally and a fracturing of the geopolitical order.

Businesses and governments should not lose sight of the indirect consequences of the Russia-Ukraine conflict, which may persist for a long time. This includes the continuing risk arising from the large volume of new economic, financial, and trade sanctions and the global impact arising from the reduced availability of key commodities such as oil, fertilizer, and grain.  

Claims under political risk and trade credit insurance policies typically take time to develop; the volume of claims associated with the conflict is nearly certain to increase, although that remains to be seen. Following is an update on significant insurance and risk management implications of the conflict.

Aviation and Space

Sanctions by the UK, EU, and others prohibiting the supply of aircraft or parts to Russia as well as related financing or insurance, followed by a Russian expropriation of foreign leased aircraft, have led to multiple aircraft stranded in Russia. This has resulted in significant aviation hull losses, which have already led to aviation hull war insurance rates spiking by approximately 200%, on average, and underwriters re-examining coverage.

The broader aviation insurance market may harden, further straining the aviation industry, which is struggling to recover from the impact of the pandemic.

The aviation and space sanctions have also led to international insurance coverage for satellite launches and deployment being unavailable for Russian-built satellites and launch sites within Russia.  Between 2017 and 2021, Russia accounted for about 16% of global launches. 

In addition, specialist Russian aircraft carried a significant proportion of satellites made and delivered outside Russia, which is no longer possible. 

This reduction in satellite carrying capability may delay launches for years, resulting in a reduction in space insurance premiums that may impact rates for launches outside Russia.

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Damage to marine hulls, ports, and cargo will generate losses in Ukrainian ports. Notably, insurance coverage for land transit of cargo in Ukraine is no longer available.

Global supply chains and the flow of commodities may face further disruption as a direct result of the hostilities in Ukraine and indirectly through sanctions and insurance market tightening.

The significant increase in sanctions and trade controls on Russia impact a wide variety of goods being supplied to or from Russia. The EU, UK, and some other countries have also prohibited the financing and insurance of impacted exports and imports.

The differences between various countries’ sanctions regimes have added an additional measure of complexity and risk of doing business internationally. 

Companies that operate internationally need to consider not only sanctions that apply to them but also how local sanctions may apply to other parties in their supply chain may impact their business, as well as their banks, lenders and insurers.   

It should also be noted that the marine insurance industry had in recent years been put on notice by US and UK regulators to increase their monitoring of the vessels and goods they insure in order to identify vessels that may have sanctions ownership or be involved in sanctions evasion.

For the time being, all marine insurance lines remain relatively stable, from both an overall capacity and a pricing perspective, with the exception of increased hull and cargo war rates.

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Energy and Power

The energy insurance market is seeing an immediate impact on its premium volume due to sanctions on Russian oil and EU attempts to reduce reliance on Russian energy. As of December 2021, Russia accounted for nearly 10% of world petroleum production. Germany and other EU members that previously bought Russian natural gas and oil are trying to line up alternative energy supplies, including possibly delaying original coal phase-out plans or revamping already shutdown coal power plants (when feasible). Meeting power demand may increase the need for new upstream energy investments and energy infrastructure outside of Russia.

EU sanctions prohibiting EU companies from insuring any Russian oil shipment are due to fully come into effect by the December 5, 2022, raising concerns of even higher energy prices. The UK has so far held back on a similar ban, only restricting imports into the UK from the end of the year. Changes to UK and EU positions depend on the outcome of a US attempt to gain international agreement on an oil price cap, which would allow insurance for oil shipments under a certain price.

One of the long-term consequences of the Russia-Ukraine conflict is the acceleration of the transition to renewable energy sources. Energy market observers forecast that mature economies are entering a “capex supercycle” in which capital expenditures to support the transition to a lower-carbon economy are expected to be enormous. That shift is likely to increase demand for insurance coverage for these new industries.

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Credit, Political Risk, and Surety

Claims are beginning to emerge for Russian and Ukrainian trade credit, political risk, and structured credit policies issued before sanctions were imposed. More trade credit and structured credit claims for Russia are anticipated in the second half of 2022 and the first quarter of 2023. Political risk claims are expected from Russia in the fourth quarter of 2022 and through 2023.   

Significant political risk claims for war and confiscation in Ukraine have emerged. Since late February, few – if any – new political risk or credit insurance policies have been available for Russia, Ukraine or Belarus.

The conflict has had a minimal impact on the global surety market, due to low penetration of sureties in Russia or Ukraine.

One of the clear indirect impacts of the Russia-Ukraine conflict is heightened economic and political risk in poorer nations that depend heavily on energy and agricultural imports, particularly nations in Africa and the Middle East. 

There is also increased caution in writing risk in China, due to its support for Russia and the heightened tensions in Taiwan, which has increased concerns about the potential for increased economic risk in China.

The Russia-Ukraine conflict underlines the increased volatility in geopolitics in recent years, which creates complexity for managing risk in complex and extended supply chains, and in evaluating the appropriate cost of that risk. This realization, reinforced by the ongoing conflict, is increasing demand for trade credit, political risk, and structured credit insurance to respond to the heightened risk environment and to secure liquidity and reduce capital costs.

These trends are further driven by a move to quantitative tightening and contractionary monetary policy. Surety is also seeing more demand due to the inflation of project and asset values, need to release collateral to support liquidity, and the rising costs of bank credit facilities.

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Other specialty insurance lines

The conflict has signaled a shift in corporate reactions to events that trigger moral/ethical decisions. Over a thousand companies have announced they are leaving or voluntarily curtailing operations in Russia.

The exodus of Western companies from Russia illustrates how public pressure can amplify risks for company decisions intended to demonstrate their commitment to environmental, social, and governance (ESG) programs. For example, choosing to either continue doing business in a country perceived as acting contrary to ESG values, or to exit and trigger a financial loss, may complicate directors and officers (D&O) liability risks. Russia has also threated insolvency proceedings and criminal liability for companies seeking to close their Russian operations.

The Russia-Ukraine conflict has exacerbated post-COVID-19 economic risk, accelerated inflation, and drawn a line under recent Western economic orthodoxy. For example, wider macroeconomic dislocation, largely stemming from the conflict, has contributed to a slowing of mergers and acquisition deal flow. In the first half of 2022, deal size was generally smaller than in the first half of 2021 and, in the US, there has been an approximately 75% reduction in the number of IPOs and special purpose acquisition company (SPACs) formation and de-SPACs.

This may temporarily reduce demand for transactional risk products, such as representations and warranties insurance, which had shown strong growth in recent years, while also increasing the complexity of some of these risks.

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What to watch

A few developments emerging from the Russia-Ukraine conflict that may warrant monitoring and discussion with a trusted risk advisor include:

Impact of sanctions

There has been a significant increase in the use of sanctions and trade controls. While media reporting has focused on the aviation and marine industry, sanctions have in fact impacted a large variety of goods and services being supplied to Russia.

Companies now need to keep up with very regular changes to sanctions, the differences in sanctions regimes between the EU, UK, and US, as well as other countries joining the effort such as Singapore, Australia and Canada.  This increases the complexity for international companies looking at which sanctions may apply in all the different countries in which they operate.

Shareholder action

While many Western companies have announced plans to divest assets in Russia, often at significant expense, how organizations handle future decisions to exit countries — and whether those decisions trigger derivative actions that may be covered under D&O liability insurance — remain unknown.

Insurance exclusions

Some insurers have sought to impose new exclusions to reduce their exposure to claims arising from the conflict and to sanctions. Clients should work with their broker to understand possible coverage implications and consider challenging unclear or unhelpful exclusions to avoid potential disputes with their insurers.

Changing supply chains

Many companies are seeking new suppliers, points of manufacture, and routes of shipment. A major shift in thinking is taking place, from “just in time” supply chain deliveries to “just in case” supply chain risk management. The combination of these issues with geopolitics and inflation means that values at risk have increased in less well-known locations, often with new suppliers and changing customers. Credit and political risks are necessarily heightened, and existing and new insurance for these perils should be reviewed to ensure coverage is appropriate and adequate.  


In light of the broader economic and geopolitical challenges and the supply chain impact, costs of capital and the need for working capital are increasing at the same time. Credit, surety, and political risk insurance can be effective in helping to secure additional liquidity and reducing collateral requirements. It can also increase lending lines and reduce regulatory capital costs for financial institutions.

To better understand your organization’s exposure to potential loss arising from the Russia-Ukraine conflict and to review your insurance protection, contact your Marsh advisor.

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Russia-Ukraine conflict

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