As insurance claims in the anti-terrorist operation zone in eastern Ukraine exceed Hr 500 million, the financial services regulator has asked the Ukrainian Justice Ministry for clarification on the area’s legal status, the procedure for state reimbursement and insurance policy obligations.
One of the sticking points in the industry is whether to treat these claims as “acts of terrorism or war” or “wrongful acts of third parties.” Terrorism might not be covered while “wrongful acts of third parties” qualify for compensation.
Allianz Ukraine general director Garry Andreasyan told the Kyiv Post that the claims will almost certainly rise as the Russian-fueled war goes on. Half of this amount has already been declared, while insurers have created a claims reserve of Hr 100 million, of which Hr 12 million had been paid out as of July 25, according to the main industry portal Forinsurers.com.
Most insurance policies in Ukraine do not cover force majeure or uncontrollable events, which can include war and terrorism. The League of Insurance Organizations reports that it has received numerous complaints from insured people in the war zone that their claims are being rejected on these grounds.
Legal entities are making the vast majority of claims, but most of them could face a lengthy wait for claims to be processed because of complications in the war zone. Ongoing fighting means claims adjusters are reluctant to investigate, and even if they are brave enough to meet policyholders, documentation can be very difficult. “Local law enforcement must do an investigation and provide the appropriate documentation,” explains Natalya Lehkaya, spokeswoman of major insurer Aska, “but few officials are working.”
The threat of fraud is also very real, as policyholders and local authorities will collude in assessing the cause of damage in order to get around clauses that are grounds for claim denial, such as acts of war.
Knyazha insurance company chairman Dmytro Hrytsuta recounts a case whereby a claimant in a liberated city said that his supermarket burned down because of an electrical short. “However, we later discovered evidence that the place had been hit by an artillery shell.”
The company has also received many stolen vehicle claims, where “masked men” had seized cars for use by the self-proclaimed Donetsk or Luhansk People’s Republics. PZU Ukraine chairman Maciej Szyszko says that such claims have doubled at his company.
The state financial services regulator argues that military activity in the war zone should not be a cause of denying of insurance holders’ claims. Market players are not so sure. At an Aug. 6 meeting between the regulator’s chairman Maksym Polyakov and representatives of the largest insurers, all agreed that the region is still subject to Ukrainian law. Polyakov called on the companies to be ready to make client-friendly exceptions in approaching war-related cases “because of the extraordinary circumstances.”
Uniqa chairman Yuriy Yefimov says, “our shareholders have decided to make payments to vulnerable people as charity on a case by case basis.” For stolen cars, Knyazha’s Hrytsuta said those payments were made as charity with the approval of shareholders.
Insurance companies are also introducing special “war” policies to get around the ambiguity. In June Aska began selling “Shield” policies that cover property lying in an area of “military activity or civil unrest” for the duration of hostilities.
The war is putting pressure on the insurance industry in other ways. First quarter gross written premiums – the main industry indicator – were down 35 percent compared to the same period in 2013, while the hitherto unpopular life insurance segment was up 18 percent. Life insurance comprises about 10 percent of all premiums.
The two main reasons for this, other than the overall economic turmoil, are war-related. Policy renewals are almost impossible in the war zone, and many individuals are cashing in their policies because they need the money, according to Halyna Tretyakova, general director of the Ukrainian Insurance Federation.
Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].
