28 POLICY Special edition 2023 The Recovery of Ukraine: New Insurance and Reinsurance Risks and how they will Affect Israeli Carriers and Exporters By Ben Aram, Head of the Corporate-Commercial Division of Kennedys and head of the Israeli Desk in London Alexandra Rodina, the Head of the Ukraine Desk at Kennedys Zvika Zelichov, Managing Partner of Kennedys Israel The ongoing conflict in Ukraine has far-reaching implications, extending beyond the immediate devastation and disruption to the long-term economic recovery and legal infrastructure of the nation. Insurance and reinsurance will play a key part in the recovery, supporting the reconstruction and investment efforts which Israeli companies and their supporting local and global insurers will be participating in. Insurance and Reinsurance: A Critical Mechanism in Times of Conflict In the face of an ongoing conflict in Ukraine, the practical implications of insurance for post-conflict recovery and restoration are increasingly being recognized. The forthcoming reconstruction effort is predicted to be substantial, necessitating the involvement of private insurance and other businesses for successful execution. The conflict has inflicted considerable damage, thereby escalating the need for foreign investment and heightened insurance protection. However, the insurance environment in Ukraine is characterized by inherent complexities. The nation’s developing status and a nascent legal system present distinct challenges for foreign businesses and insurers in managing Ukrainian risks. The Ukrainian insurance market lacks the capacity to assimilate the country’s economic risks fully. Consequently, it relies heavily on the London Market and the European reinsurance sector. International brokers such as Marsh, Willis, and Aon handle major industrial risks, with most direct policy wordings used in Ukraine based on language initially prepared by the London Market. This leads to the standardization of policy wording, an essential factor for efficiency in underwriting, claims handling, and reinsurance. The interpretation of insurance coverage requires a comprehensive understanding of Ukrainian direct insurance and English reinsurance contracts. Though the direct policies are predominantly governed by Ukrainian law, determining the underlying commercial purpose of the Ukrainian contract necessitates consideration of the interpretation given to standard clauses by English judicial decisions. What does this mean for Israeli exporters and their insurers? Insurance policies for international corporate policyholders operating in Ukraine, including Israeli exporters of goods and services, particularly in the infrastructure sector, are often part of a larger, multi-national programme. This may include a local policy issued by a local insurer governed by Ukrainian or Israeli law, sitting under a master policy issued by a London, European or Israeli insurer and governed by the law of that insurer’s jurisdiction. This means that Israeli exporters involved in the Ukraine reconstruction efforts along with their own insurers and reinsurers will have to navigate not only the multitude of challenges presented by the particularities of the Ukrainian post-war landscape as a whole, but also the added complexities arising from unusually complex insurance towers and wordings reflecting the Israeli and global insurance industry’s risk appetite for potential claims associated with a jurisdiction such as Ukraine. More than ever, the insurance industry will therefore require specialist guidance on complex wordings and coverage issues, including where disputes arise across a number of relevant jurisdictions including Ukraine and Israel. Expertise is most likely to be required in specific lines of business including D&O, construction (CAR/ EAR), pollution liability, cyber, boiler and machinery breakdown, fidelity, marine, and export trade risks. Kennedys’ Ukraine Desk Kennedys is uniquely placed to assist insurers and reinsurers given its global Zvika Zelichov Ben Aram Alexandra Rodina Continued on page 39
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