Added exclusions from Ukraine crisis threaten validity of international programmes: GVNW

German risk managers call on insurers to show ‘sense of proportion’

The German risk and insurance management association, the GVNW, has warned insurers that there is no need for further territorial policy exclusions as a result of the ongoing war in Ukraine.

The association appealed to the insurance industry not to “lose its sense of proportion” when analysing and assessing geopolitical risks, and to show a willingness to work with its customers to find “sensible and risk-adequate” solutions that take account of the interests of both parties.

The GVNW, the representative body for leading companies in Germany, said it has seen “with concern” the recently formulated demands of some insurance companies for a so-called “territorial exclusion” for Russia, Ukraine and Belarus.

“Since the beginning of the Ukraine crisis, the western world in particular has introduced sanctions regimes against Russia. In this context, we are observing a trend among insurers to want to include extensive territorial exclusions in insurance contracts that apply worldwide,” stated the association.

The GVNW urged insurers not to apply an underwriting “lawnmower” in what is a more complex, and often insurable, situation in a difficult set of circumstances.

“With these new clauses, damage that occurs in Russia, the Ukraine or Belarus, or risks that are more or less closely related to Russia in particular, are to be completely or at least largely excluded from insurance cover. There is no need for industrial insurers to proceed in this way – in our opinion ‘with the lawnmower’,” the association said.

The GVNW added that insurers are already “adequately protected” by the existing instruments for designing and objectively limiting insurance cover, such as sanctions clauses and war exclusions.

“If insurers recommend companies to obtain more local insurance cover in the current situation, this contradicts the concept of a coordinated/integrated international insurance programme. The functionality (in Ukraine) and reliability (in Russia) of the respective local insurance market is currently severely restricted. Capturing and cushioning such local uncertainties is the task of insurers offering international insurance programmes,” it said.

The GVNW argued that with a complete territorial exclusion, the insurers “overshoot the target” because it would also make it more difficult or impossible to deliver permitted goods to Russia, such as baby food, medicines, special medical products or seeds.

It added that, in the case of product liability claims in which people would be injured or killed, failure of insurance cover should also not be justifiable. “It should also be borne in mind that it is not possible for companies to withdraw from the affected countries immediately without relevant (subsequent) liability potential to products that have already been delivered. Such risks may then remain without appropriate insurance cover and would have to be borne solely by the companies, although premiums have already been paid for them,” stated the GVNW.

The association added that cargo insurers have terminated insurance against war risks for air, mail and sea transport. “Further country exclusions, which then also include loss of or damage to goods in regions far removed from the hostilities, are not necessary,” stated the GVNW.

“Again and again, the insurance industry expresses concern about difficulties in claims settlement. Since the regulations on the burden of explanation and proof continue to apply to all parties involved, in our opinion there is no reason to deviate from them. Incidentally, there is still for the insurers – as a milder means versus the introduction of a territorial exclusion – the possibility of making insurance contract agreements with their policyholders in advance, according to which benefits in the event of a claim are provided exclusively in Germany,” the association said, once again underlining policyholder frustration with the apparent obsession with exclusions shown by carriers in the post-Covid world.

The GVNW also asked the pertinent question of what happens if the war ends before the end of the contract term (policy), or if the risk situation improves significantly for other reasons. “Does the territorial exclusion then lapse without replacement? If it continues to apply until the end of the insurance period, although the purpose of the regulation no longer applies, this would be an extremely unsatisfactory result for the policyholder,” the Bonn-based association said.

And the GVNW is worried about the longer-term implications of a retreat from wider geopolitical crises. “We fear that after the inclusion of a corresponding exclusion, the list of excluded countries or territories will become longer and longer as soon as further (political) challenges arise somewhere in the world. Such a development would be unacceptable from the point of view of the German economy. It must therefore be resolutely opposed,” it stated.

The insurance sector is basically retreating too far and too fast from a critical risk area, and will potentially seriously hamper the ability of German industry to recover fully from the pandemic and maintain its position in the future world economy, argued the GVNW.

“In principle, the German economy cannot and does not want to do without reliable partners in risk transfer who provide insurance cover that is adequate for the risk. With a turning point in the geographical scope of insurance contracts, insurance companies not only endanger the maintenance of business relationships of German companies but also expose their policyholders to a risk that is worthy of insurance and, in our opinion, insurable, but suddenly no longer insured,” the association said.

“We therefore appeal to the insurance industry not to lose its sense of proportion when analysing and assessing geopolitical risks and to show a willingness to work with its customers to find sensible and risk-adequate solutions that take account of the interests of both parties,” concluded the association.

The GVNW should be applauded for issuing such a strong statement about the exclusion trend that is currently in vogue among insurers. The latest round of first-half insurer results has been dominated not by talk of the need for more rate increases but, rather, a focus on exposure growth at a time of high inflation.

Or, in other words, buyers will continue to pay more for less coverage because of the wider economic situation. The ratings environment may well be flattening in underlying terms but if the scope of the coverage has been limited, and limits on offer seriously restricted, the end result is arguably the same as a doubling in price despite the actual loss experience.

If the insurance market is attempting to maintain its rate of return to investors by offering half the coverage for double, or even equal, the price charged only five years ago, then serious questions have to be asked about the long-term viability of the product.

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