The government proposes covering initial losses at the state’s expense, whilst think tanks advise that the budget should cover only catastrophic risks.
Ukraine still lacks a fully-fledged system for insuring businesses against war risks. The Export-Credit Agency’s programme only provides compensation for insurance costs of up to 3 million hryvnias or losses of up to 30 million hryvnias. At the same time, reinsurers are increasingly refusing to cover war risks due to their unpredictability.
The M3 model proposed by think tanks provides for a business excess of 3–5 per cent of losses, insurance by private companies, reinsurance and, only at the final stage, a state guarantee against catastrophic losses. The state will also compensate 80 per cent of the policy cost.
This allows for up to 1.59 UAH of insurance cover for every hryvnia of budgetary resources. Minor losses will remain within the excess limit, more serious losses will be assessed by private insurers, and the state will intervene only in exceptional cases. This reduces administrative costs and corruption risks whilst maintaining incentives for businesses to prioritise safety.
The Ministry of Economy is proposing an alternative model: the state will cover the first tier of losses for critical fixed assets in specific sectors, with insurers stepping in at a later stage. The maximum cover is $10 million. The plan is to finance the system through a business contribution of 2 per cent of the value of insured assets and a 1 percentage point increase in VAT.
If participation is compulsory, the 2 per cent will effectively become an additional tax, particularly for businesses in safer regions. If it is voluntary, companies facing the highest risks will be the first to sign up, so there may not be enough funds. There is also no answer to the question of who will cover catastrophic losses.
The assessment of compensation by state bodies will also entail significant costs and may create a breeding ground for inflated claims, fraudulent applications and ‘kickbacks’.
Model M3 appears more robust, but requires a precise calculation of costs and sources of funding. Critical infrastructure may require a separate scheme with accelerated payouts. International partners should be the key source of funding, so the final model should be developed with their involvement.