latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/global-insurers-face-raft-of-challenges-from-sanctions-targeting-russia-69290133 content esgSubNav
In This List

Global insurers face raft of challenges from sanctions targeting Russia


Insight Weekly: Loan-to-deposit ratio rises; inventory turnovers ebb; miners add female leaders


Debt Ceiling Debate: IR Teams Should Prepare for Potential Market Downturns


Insight Weekly: Sustainable bonds face hurdles; bad loans among landlords; AI investments up


No disruption on the road to digitization

Global insurers face raft of challenges from sanctions targeting Russia

Sanctions against Russia will cause the global insurance industry to lose some business, may trigger loss claims and force companies to keep pace with a barrage of new rules.

The U.S., European Union and U.K. and a number of other countries, have imposed economic sanctions on Russian companies and individuals in response to the country's invasion of Ukraine. A handful of those sanctions are directly aimed at blocking Russian entities and interests from accessing global insurance markets, and many other restrictions may affect insurers' business.

Aviation and space insurance and reinsurance lines will be hit as both the U.K. and EU have signaled they will block Russian companies from accessing that coverage. Marine, trade credit and political risk covers also are likely to be directly affected.

The industry faces a fairly broad impact, according to Daniel Martin, a partner at law firm HFW. Some of the rules now in place render companies unable to insure a sanctioned person or reinsure a sanctioned insurer, irrespective of the type of business. While keeping tabs on sanctions is "business as usual" for London underwriters, the pace of how quickly things are changing is unique, Helen Dalziel, director of public policy at the International Underwriting Association of London, said in an interview.

"The unusual circumstance is the rapidity — the changing every day of the number and amount of entities and sanctions that are being brought forth," Dalziel said.

Far-reaching effects

EU sanctions introduced Feb. 25, for example, contain a ban on exporting goods to Russia that might enhance the country's defense and security sector. The ban includes related finance and financial assistance, including "all types of insurance and reinsurance," Guy Soussan, partner at law firm Steptoe & Johnson, said in an interview, adding that the new sanctions are "far more far-reaching than what we had before."

Sanctions against Russian banks will hit insurers' ability to receive premiums and pay claims through those banks, even if the business is otherwise allowable. The removal of seven Russian banks and prospective removal of three Belarusian banks from the Swift global financial messaging network could similarly complicate payments to and from insurers.

The Swift ban itself could trigger insurance claims. One affected area is trade credit insurance, which covers companies that have sold goods and services on credit for the risk of buyers not paying. Most insurers have already stopped providing short-term trade credit cover for sales to sanctioned entities and people in Russia, but remain on the hook for insured goods that have already been delivered on credit, according to Bernie de Haldevang, head of credit, political risk and crisis management at Lloyd's insurer Canopius.

"They're hoping money can come out, but with the Swift system now closed to non-energy related transactions, this may be more challenging than before," De Haldevang said in an email.

Insurers may have a level of protection from claims in the form of sanctions clauses, which essentially nullify cover where sanctions are present. Such clauses "are now pretty standard," HFW's Martin said.

Measures taken against individuals could also affect insurance coverage. Steptoe & Johnson's Soussan said it would become "impossible" to provide insurance for the business assets owned by sanctioned Russian oligarchs.

Rapidly changing situation

The changing sanctions regime means that "it's important that firms are doubly, triply sure that their processes are robust and that proper due diligence is genuinely brought to every transaction," Chris Croft, CEO of the London & International Insurance Brokers' Association, said in an interview.

A further area of concern for the industry is any substantial divergence between countries seeking to impose sanctions on Russia. Croft said LIIBA's message to the U.K. government was that there needs to be alignment with the EU and U.S. Managing divergent sanctions regimes raises the risk that a broker might violate one, Croft said.

The U.S. on March 8 announced plans to ban the import of Russian oil, liquefied natural gas and coal, while the U.K. said it would phase out imports of Russian oil by the end of the year. Speaking before those new curbs were announced, Martin said oil and gas import bans would have a "significant impact" on insurers.

More difficulty may be on the horizon. One area to which the insurance industry has paid little attention, according to Martin, is reciprocal measures from Russia. For example, the Russian arm of a European insurance group may find itself being asked by its parent to abide by EU sanctions but face pressure from Russian authorities to ignore them.

"I think there will increasingly be an issue, particularly when it comes to assessing and paying claims for the current period," Martin said.