Insurance of sea transportation through Ukraine has been extended to all types of cargo
The Unity Facility grain insurance mechanism through the Ukrainian maritime corridor, which has been in effect since November 2023, has been extended to vessels carrying any cargo since February 2024, Oliver Wyman partner Crispin Alison said.
“By combining the efforts of the industry and the authorities, we were able to create a mechanism where prices are much lower than half of those on the regular commercial market. And now, at this location, we’ve expanded that capability to include the transportation of all cargo, not just grain,” Crispin Ellison said at a webinar on political risk insurance organized by the U.S.-Ukrainian Business Council (USUBC) and the U.S. Department of Commerce.
Formally, the operation of the mechanism begins on March 1, 2024, but the option of cargo insurance is already available and triples it.
Crispin Alison recalled that after the withdrawal of the Russian Federation from the Black Sea Grain Initiative, insurance rates increased only for the element of military risk to about 5%, which was absolutely unsustainable and led to the cessation of shipping in July-August.
The new insurance mechanism for sea transportation in the territorial waters of Ukraine will make it possible to reduce the cost of grain insurance by approximately 2.5 percentage points from the cost of the insurance tariff, which will enable grain traders to save approximately UAH 100-140 per ton of cargo, and in general, it will additionally bring up to UAH 4 billion. These funds will be directed to farmers both by increasing the purchase price and for additional purchases.
As Forinsurer wrote, broker Marsh McLennan and underwriters Lloyd’s in cooperation with the Ukrainian government, the Export Credit Agency of Ukraine, Ukreximbank, Ukrgasbank and DZ Bank announced the launch of a new program – Unity Facility – to provide affordable insurance to support the export of grain and other important food products from Ukraine, which are transported from Black Sea ports.
Underwritten by Lloyd’s insurers, the new Unity program will provide up to $50 million of marine hull and separate protection and indemnity (P&I) coverage against military risks.
Recognizing the increased danger and uncertainty associated with shipping in the Black Sea region, Lloyd’s insurance market has already classified it as a high risk area. Ukrainian ports have been closed since the Russian invasion in February, and marine insurers Lloyd’s and the London-based commercial insurance market are awaiting additional guarantees given the potential losses associated with each vessel.
In addition, a parallel cargo coverage mechanism supported by EBRD financing for the Government of Ukraine is being considered.
A relatively small amount of insurance capital made it possible to export goods worth approximately 20 billion dollars, and its estimate is 6-8% of Ukraine’s GDP.
The creation of this public-private partnership with insurers working together with the Ukrainian government and its banks will accelerate the urgent recovery of vital grain exports amid the ongoing effects of this brutal conflict, experts believe.
Unity’s unique structure will allow underwriters to assess risk at more affordable levels than those seen in recent months.
The Cabinet of Ministers of Ukraine created a new mechanism for insurance of ships against military risks. It will make it possible to significantly reduce the current insurance premiums for carriers that export and import to Ukraine by sea. The relevant decision, which paves the way for cooperation with British reinsurance companies, was adopted at a meeting of the Government on November 14, 2023.