The new ship insurance system in Ukraine: what you need to knowv

It has been two weeks since a new mechanism for insuring ships against war risks came into effect in Ukraine. It will significantly reduce the current insurance premiums for carriers exporting and importing to Ukraine by sea. The Ukrainian government adopted the relevant decision, which paves the way for cooperation with British reinsurance companies, on November 14, 2023. Here's what will change and what it will mean for charterers, operators and owners of ships.

Background

Odesa River Station on the eve of Russian shelling

After Russia withdrew from the United Nations-brokered Black Sea Grain Initiative in July 2023, shipping faced a much more volatile security situation in the region. The Russian Federation continues to shell Ukrainian sea and river ports.

Insurance risks have increased as more than one vessel has been damaged. Therefore, the emergence of a new insurance scheme is good news for the alternative corridor.

As a result of the agreements between President of Ukraine Volodymyr Zelenskyy and Prime Minister of the United Kingdom Rishi Sunak, Ukraine and a pool of British insurance companies have created a special mechanism that will reduce the cost of war risk insurance for exporters of all products from Ukraine and create competitive conditions in the market.

Who will be affected by the program

Ship insurance will have a positive impact on the work of grain traders

Ship insurance was made possible through cooperation with leading British reinsurance companies - Marsh McLennan and underwriters Lloyd's of London through the launch of the Unity Facility.

The total coverage under this program is USD 50 million. This decision will primarily have a positive impact on the work of grain traders. The new mechanism will reduce the cost of grain insurance by about 2.5 percentage points of the insurance tariff, which in turn will allow grain traders to save about UAH 100-140 per ton of cargo, and in total, it will bring additional UAH 4.0 billion to agricultural producers.

Overall, the system will have a positive impact on all participants in the logistics process for the following reasons:

1. Ensuring protection of the interests of ship owners. Insurance allows you to reimburse the cost of repairing or replacing a vessel in the event of damage or loss. This helps to reduce financial risks and preserve investments in the vessel.
2. Development of maritime transport in Ukraine. The system stimulates ship owners to modernize and improve their safety, which contributes to the competitiveness of the Ukrainian fleet. In addition, the availability of insurance coverage ensures the confidence of partners and customers in the reliability and safety of transportation.
3. Improving the insurance market in Ukraine by increasing competition in the market and improving the quality of services.

How the new mechanism will work

The market of insurers and shippers will feel the effect of the new mechanism through lower freight rates. It is planned that leading British insurance companies will join the pool, which will enable insurers to provide shipowners with an insurance rate of no more than 1.25%.

Experts predict that the decision will ensure the safety of shipping, promote the stability of maritime transportation, and ensure the sustainable export of Ukrainian products through Ukrainian ports.