Russia's Attack on Ukraine: Impacts felt in the Insurance Industry

The global economy already faced uncertainty due to COVID-19, but the Russian-Ukrainian conflict has placed further pressure upon the economy. While the crisis faced in Ukraine may seem worlds away, there will likely be impact felt in America, even in the insurance realm.

Even before Russia's official invasion, numerous nations began to announce hefty sanctions on the country and its individuals. These sanctions have only escalated as Russia continued its invasion into Ukraine. Western nations have, among other things, frozen Russian company assets in their countries and prevented Russia access from utilizing the international payment system known as Swift.

In the United States, transactions with Russia have been completely halted, preventing imports, exports, and financial transactions. Many of these sanctions may end up impacting business owners and result in losses that are uncovered by their property insurance. For instance, if a business owner provides Russian-imported goods to customers and either voluntarily chooses to stop selling the goods or is unable to obtain them, insurance would provide no coverage for losses associated with the loss of sales. This may also impact businesses relying on Russian transactions, such as those supported by Russian-backed investors. With a halt of financial transactions, it is possible some businesses will be unable to pay rents, payroll, or other business expenses, but be unable to turn to their property insurer for support.

In addition, losses may be felt more generally by a reflection of inflation in insurance prices. Inflation reached a forty year high in the United States recently, rising over 7.9% from 2021 to 2022. As a result of the conflict, wheat, nickel, and natural gas have all seen double-digit inflation increases from their already high rates due to the impact on the global supply chain seen by the sanctions and loss of Ukrainian imports. Increased inflation may have a direct impact on property insurance rates when it comes time for renewal, even if the conflict has ceased, because with the increase in costs of goods comes an increase in costs of insurance premiums to cover those goods in the event property is damaged.

Insurance companies themselves may also see an impact. Typically, insurance companies take premiums and invest them in low-risk, long-duration assets. There are a few insurers who have invested in Russian-backed assets, which have gone from low-risk to worthless within the span of a few weeks. For those insurers, they will likely see a decrease in stability of profits from premiums, of which will likely be passed to the consumer through increased rate hikes.

This article is not intended to be legal advice nor create an attorney-client relationship.