Just how is insurance caught up in trade sanctions against Russia

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Insurance really is a global industry and has many times been described as the oxygen in the lungs of the economy.

With any insurance policy on commercial risks written out of the United Kingdom (UK) or the European Union there is a sanctions clause. In fact this appears in most if not all commercial contracts.

The Financial Conduct Authority (FCA) in the UK issued the following practice note in 2021.

No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurer to any sanctions, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America.’

The UK also has an “Economic Crime Bill” which is designed to keep a register of overseas entities and their beneficial owners. This requiring registration of overseas entities who own land in the UK. Many do not believe that “Economic Crime Bill” goes far enough as many foreign nationals go to great lengths to keep their assets secret.

So what is the current state of play. Three major international insurance brokers have either withdrawn or suspended their operations in Russia.

Swiss Re and Allianz are among the first insurers and reinsurers to pull back from Russia. At the same time the Russian Government has banned their domestic insurers from foreign reinsurance deals. It has been reported that Ingosstrakh Insurance, the 4th largest insurer in Russia is suffering as a result.

Lloyds Registry has deregistered many Russian owned vessels including super yachts which means they cannot be insured. Losing coverage on the hull is one thing but losing Protection & Indemnity (P&I) Insurance would mean that the vessel would not be able to visit any port, refuelling station (outside of Russia or one its allies) or travel through Suez or Panama Canal. As a result many of the prestigious super yachts have headed to Vladivostok and will be stored. Others have been arrested or seized if they were in dry dock or a port in the European Union.

A similar situation has occurred with aircraft including helicopters owned by Russian entities or individuals.

On the flip side, many Russian airlines such as Aeroflot lease their planes from European firms. The leasing companies are forbidden to do business with Russian Companies and so have sought the return of the aircraft. It appears that the Russian Government will seize the grounded planes which, in turn, will mean that aviation insurers potentially face some very sizeable losses.

These are but a few but arguably powerful ways that insurance is being used as a counter weapon to Russia’s invasion of Ukraine.

It goes without saying that my heart goes out to the innocents caught up in this conflict.

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