Ready to Invest in Ukraine? Ensure to Insure
December 11, 2015
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2.6 UAH, bln
Value of the largest property insured
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The past two years have seen our state as one of the leading newsmakers, with the world’s media displaying breaking headlines uncovering more and more of dramatic twists and turns in our nation’s history. Despite political crisis we managed to jump 13 steps up compared to the last year in the ranking on the ease of doing business in the World Bank Doing Business report which placed our country 83rd for the year 2016 meaning that next year it will be much easier to invest in Ukraine that it was in 2014. However we owe this nominal success mainly to recent improvements in tax payment and business registration process, though in terms of investment Ukraine has become more appealing. Unfortunately the feasible threats remain high for investments in Ukraine and contribute to the shriveling of foreign companies’ enthusiasm.
To put it plainly, foreign investments in Ukraine are exposed to three main perils: physical damage, financial losses and loss of title to the asset invested in.To put it plainly, foreign investments in Ukraine are exposed to three main perils: physical damage, financial losses and loss of title to the asset invested in. While the structural reforms intended to make the Ukraine’s investment climate more attractive are to be carried out under the umbrella of government policy, the insurance coverage instrument is available for each investor and can be catered to specific needs.
Physical damage of investments in Ukraine can be covered by a number of insurance products available in the market. Property damage insurance, contractors’ all risks insurance, crops and cattle insurance policies etc. are only the few among those which are of great use to the investors in terms of securing their property. What they have in common, however, that the risks they cover are not specific for the host country but call for coverage in any other country.
Financial losses, on the other hand, require more complex products. Compared to the mature markets our national one market cannot boast the rich selection of programs. Most popular are business interruption insurance (BI) and advanced loss of profit insurance (ALOP). It’s worth mentioning that ALOP is used by the companies which chose to invest in Ukraine not as often as BI coverage, though each of them is designed to protect against losses of income due to shutdown of the insured facility (applicable to BI) or due to the delay in completing the construction project, which is an object of investment in Ukraine (applicable to ALOP). The principle condition stipulated under both policies is that the cause of a shutdown or a delay should be associated with any of the perils insured under principle property damage or contractor’s all risks agreement.
Crop-yield insurance indirectly secures protection against loss of income. It is most suitable for companies which decided to invest in Ukraine’s agribusiness.
Liability insurance secures another aspect of coverage as it prevents the companies which are ready to invest in Ukraine from bearing expenses under claims associated with their operations. Liability products’ choice ranging from general third-party liability insurance to D&O (Directors & Officers) or professional liability insurance is quite sufficient to meet the requirements of businesses of all types and sizes
The rest of financial or commercial risks insurance agreements are not working in Ukraine, though some of the insurance companies list them among the services provided. State of affairs in terms of title insurance is quite the same.
All of the insurance policies named above have one negative feature which is crucial from Ukraine investors’ prospective. They do not stipulate coverage against extraordinary events such as military actions, terrorism, strikes etc. Unfortunately, there is no way to be indemnified for unilateral government rulings such as expropriation, confiscation or nationalization of an object of investment in Ukraine owned by foreign entities. However, there is a product named Full Political Violence which provides coverage for a range of aggressive actions conducted by group of participants. The price for such coverage is very high with the rate approaching 1 % of the insured object’s value, but for what it’s worth, it somewhat sets investors’ hearts at ease.
In conclusion, it should be added that careful investors won’t think about how to invest in Ukraine until a number of crucial reforms aimed at improving Ukraine’s investment climate has been implemented.
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