Linas Jegelevicius in Vilnius -
Russia’s war in eastern Ukraine and the heightened tensions in the Baltics have spurred many Lithuanian entrepreneurs into seeking protection for their businesses by getting them insured. But it is not proving easy: nearly all Lithuanian insurance companies do not cover the kind of business threats that the country currently faces because of the difficulty in properly assessing them, and those that offer services do so at exorbitant rates. To the rescue have come some global insurance players, but even they are becoming increasingly wary of doing such business lately.
“The interest in that kind of insurance has been high in the region, and the Russian and Ukraine standoff has certainly been a significant trigger in the rise of the interest. However, we do no keep tabs on the statistics,” Tomas Kontautas, the plenipotentiary representative of Lloyd's of London in Lithuania, tells bne IntelliNews, adding that Lithuanian companies’ share in Lloyd's insurance portfolios is “not big”.
Kristina Penkaitiene, director of Baltic Underwriting Agency, an insurer also affiliated with Lloyd's, tells bne IntelliNews that over the first half of the year her company has been seeing a “robustly active” demand for a geopolitical risk-related insurance. “We’ve been sharing with the clients our good experience when it comes to risk management control. We’ve submitted several proposals, both vis-à-vis war risks and political instability [in Russia and Ukraine], but the clients have not come back with the agreements, perhaps owing to their high costs,” Penkaitiene says.
Lloyd's media relations department in London declined to provide any comment on the subject. However, a source knowledgeable about the international insurance market tells bne IntelliNews the increase in that type of insurance in Central and Eastern Europe has been “considerable”.
Among the few Baltic companies that cater to the geopolitical fearful is Balto Link, a Lithuania-based insurance company. Its director, Robertas Saltis, tells bne IntelliNews that there have been “increasing numbers” of that sort of insurance seekers. “We have a couple dozen warfare and geopolitical uncertainty-related insurance cases. The subject of that kind of insurance is property and asset expropriation in the wake of a regime change. There could be a whole lot more deals of that sort, but the high insurance costs deter many businessmen from signing up,” Saltis told.
Getting coverage from the Baltic insurer for warfare-inflicted damage costs 0.05-0.1% of the asset value per year. Importantly, warfare risks themselves are not covered. “It would be too risky in the circumstances. Besides, defining what should be considered a warfare risk and what is not is too difficult,” he emphasizes.
Insuring asset seizure or property damage as a result of a regime change is even costlier – Balto Link charges 0.5% of the asset value yearly. The vast majority of Lithuanian insurance companies, however, do not cover regime change-caused forfeits at all.
As the situation in Ukraine is still seen by many insurance providers as too fluid and unpredictable, some of the insurers who might’ve been willing to address Lithuanian business’ apprehensions in the country before have now halted services indefinitely. “We were offering business insurance in case of asset confiscation in Ukraine before 2012, but with the hotspots in the country popping up, we decided to discontinue them. Well, to be precise, we kept reviewing such requests case-by-case until 2014 with a credible warrantor coming forward and vouching for the insurance seekers, but it has been an exception to the rule,” Mantvydas Stareika, director general of Coface Austria Kreditversicherung AG Lithuania, tells bne IntelliNews. “From 2014 we do not assume, insurance-wise, any risks in the country.”
Ukraine is not the only country that insurers currently distrust. Russia and Belarus, which seem a lot more stable to many, lack insurers’ credibility too. “Insurers are especially wary of the latter, hence the extremely high annual insurance rates set by Lithuanian insurance companies – up to 3-5% of the asset value in case of property confiscation, following a potential change of the Belarusian political regime,” Andrius Romanovskis, executive director of Lithuania’s Insurers Association (LIA), tells bne IntelliNews.
As insurers won’t disclose the names of their clients, some of which are thought to be major companies, small and medium-sized business owners with a foot in Ukraine have their own take on the Ukraine-based business insurance. “None of my fellow counterparts, me including, had given a thought on getting the business risks insured. And neither of us would be able to pay the premiums. It is for other tier players I am not familiar with,” Aloyzas Dirse, owner of JSC Pavlita, a haulage company operating in Ukraine, tells bne IntelliNews.
The hauler has seen his turnover shrink by half over the last few years and admitted to having dealt with “tons of hurdles” for the business over the last couple of years in Ukraine.
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