Are you still doing business in Russia? Good luck renewing your insurance.

More than 750 Western companies have left Russia since it invaded Ukraine. Some had no choice because their areas fall under Western sanctions. Others left voluntarily and were hailed for standing up for democracy. Their departure may have another, less noble reason: Russia is becoming uninsurable.

Insurance is necessary for globalization: it captures the risk of operating in unstable environments, allowing companies to do business in a wider variety of locations. Certain forms of insurance, such as freight and liability, are mandatory for businesses based in the West. Other types of insurance are voluntary but essential for operating in less stable countries. Political risk insurance protects policyholders against a variety of risks ranging from expropriation of assets to civil unrest. This protection allowed countless Western companies to set up shop in Russia and continue to operate there even as Vladimir Putin’s regime grew more capricious. Without insurance, it is likely that some Western companies would have left the country after Russian authorities raided BP’s Moscow offices in 2011.

Now, however, insurance protection is receding. “The political risk insurance market has essentially closed for Russia, as well as Belarus and Ukraine,” Laura Burns, political risk expert at insurance broker Willis Towers Watson,

said. “Because of the sanctions, there is effectively no new investment in Russia anyway. But if a company wanted to insure its existing investment, it would not be able to obtain political risk insurance at this time. This is hardly surprising. Political risk insurers protect businesses against a host of calamities, including economic turbulence and government interference. In the current state of Russia, it would simply be too risky to offer political risk insurance to new clients.

Sanctions against Russia further increase the risk. “The sanctions from the West are extremely extensive,” says Neil Roberts, head of maritime and aviation at insurance industry body Lloyd’s Market Association. “The problem for insurers is that there is a lack of harmony in country sanctions, so insurers have to err on the side of caution. This means choosing not to sign policies with a new customer even when operating in an industry not covered by sanctions, such as grain. If the insured is found to be connected to a sanctioned company, the insurer may draw the attention of the US Treasury’s Office of Foreign Assets Control, which can mean hefty fines or even jail for leaders.

Insurers cannot terminate existing contracts without cause. But once policies in Russia expire – for most compulsory forms of insurance they last six or 12 months – many insurers will refuse to renew. Freight underwriters have already started to suspend cover in Russia and Ukraine. Political risk insurance is usually taken out for several years, but once a company’s mandatory coverage expires, it cannot operate in Russia anyway.

There are Russian providers of compulsory insurance such as freight, liability and property, but some of them are subject to sanctions and others are in any case largely unknown to Western companies.

Expect the exodus of Western companies from Russia to accelerate as these contracts expire. But unraveling complex business operations isn’t easy, and many companies will likely stick around until their insurance runs out, hoping to claw back as much as they can. Mr Putin and Russian prosecutors have warned that the Russian government could seize the assets of Western companies that leave. Some Western companies have legitimate reasons to stay in Russia because they supply essential goods or medical equipment. But they face the same insurance dilemma as every other Western company. Once the cover is exhausted, whether the companies have resolved their financial transactions or not, they will have to leave.

“Some companies have already said they’re going to pull out, but you have to look at the mechanics,” Ms. Burns said. “Who are they going to sell to? And if they manage to sell, can they take the product out of the country, since they will only get rubles? It’s like “Hotel California”. ”

Ms. Braw is a Fellow of the American Enterprise Institute.

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