Insurance Conflict in the Ukraine

Conflict in the Ukraine

We’re in it together, whether we like it or not

by Andy Schwartze

As the tragic events in the Ukraine continue to unfold, it’s only natural to wonder how the ongoing devastation will impact the insurance world once a resolution is reached in the distant future. As history has shown us, rebuilding a war-ravaged nation is no easy feat. It takes years of labour, materials, and patience—hence why insurance contracts in western countries all contain “war” exclusions that omit this type of damage from their insurance coverage. The responsibility rests on the backs of the affected communities and their governments.

That said, every conflict has its unfortunate collateral damage, and this is where we may find some level of claims activity or impacts on premiums and reinsurance costs. Here’s an example: a house builder here in Canada ordered new windows from a Ukrainian factory before the war began, and has been unable to get the shipment for obvious reasons. What is that builder to do—find an alternate supply and ignore the purchase obligation to the Kyiv-based manufacturer? Or plead with the owner of the new build for an extension while somehow trying to figure out a way to fulfill the order. There is every reason to assume that the contract between the builder and the client does not shield the builder from the delivery obligation in the event of a war in a foreign country.

Things are always more complicated than they first appear, even when it comes to war exclusions. The conflict in the Ukraine will no doubt bring many insurers into the courtroom as they attempt to find gaps in their insurance contracts. Not unlike the pandemic’s impact on businesses in various countries, there will be a phalanx of legal teams ready to take on cases similar to that of our hapless builder to test the insurance that was placed. Much of this testing will occur over many years, and how it plays out is impossible to predict, but there will be significant legal costs incurred by underwriters dragged into court—and, as everyone knows, such costs are then loaded onto the premiums we all pay.

There are additional side effects that make this conflict a bit more impactful. A significant increase in the price of oil is already affecting the long list of things we buy and use. Simply pointing to the price of gasoline, while understandable, is just the beginning. Products of all varieties have parts and/or components that are derivatives of oil. Transportation costs, public and private, are affected by this development. While governments have historically tried to underplay inflation, it has returned in grand style, and we face price increases throughout our economy.

Back in the late 1970s and early 1980s when inflation and interest rates peaked in double-digit territory, replacement cost insurance typically rose by 10 per cent at every renewal, due to the possibility that a significantly damaged building could require a complete rebuild if municipal standards deemed it necessary. Today’s mortgage lenders demand full replacement cost coverage on not just a part of a building, but rather on the whole structure, including bylaws mandating upgrades.

So, while we may not be directly affected by the events overseas, we are certainly feeling the collateral damage everywhere, from the gas pumps to the grocery stores and the lumber yards. That means an unavoidable impact on insurance company claims costs which will have an upward impact on our coverage levels. It is not just rates that affect a premium; coverage levels also do their part.

I always like to remind my clients that there is an inverse relationship between world and economic events and the cost of insurance protection. When the former goes downhill, the latter goes up. When the good times return, insurance costs will moderate. Sadly, this second scenario seems to be a bit optimistic and regrettably far off.

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Arriving to a housing shortage

Industry rallies to support Ukrainian evacuees

Since the war began in the early spring, thousands of Ukrainian evacuees have arrived in Canada on the expedited threeyear visa to a glut of short- and long-term rentals. Groups leading the effort to support these embattled newcomers came together in April to find ways to offer aid.

“We’re all bridges to homes. We’re all bridges to jobs,” said Michael Brooks, chief executive officer of REALPAC, during an industry-organized online discussion to garner insight from the Ukrainian Canadian Congress (UCC).

Members of the webinar’s sponsoring organizations — REALPAC, Building Owners and Managers Association (BOMA) of Greater Toronto, Urban Land Institute (ULI) Toronto, NAIOP Toronto, Federation of Rental-housing Providers of Ontario (FRPO), Toronto CREW, Canadian Urban Institute, Toronto Region Board of Trade, and the Ontario Professional Planners Institute (OPPI) — were briefed on the needs of the arriving evacuees and invited to contribute.

Placements in private homes and/or temporary lodgings such as university residences and hotels were seen as key for shortterm, transitory housing. Longer term, UCC and other agencies looked to the private rental housing sector for concessions and logistical insight to help match apartment-seekers to markets that could provide community supports.

Toronto was the entry portal for about 80 per cent of the roughly 11,700 Ukrainians who landed in Canada during March. However, UCC chief executive officer Ihor Michalchyshyn reported that the organization’s branches in cities like St. Catharines, Winnipeg and Saskatoon also drew their share of newcomers.

For the full story, visit www.REMInetwork.com.