Marsh McLennan’s new facility to cover Ukrainian grain exports could pave the way for more insurance solutions to support the country amid the ongoing conflict.
That’s what Marcus Baker, global head of marine, cargo & logistics at Marsh, hopes will come on the heels of the global broking giant’s “Unity” facility.
“Now that we’ve done it, people will go, ‘Oh, it can be done. That’s amazing. I’d like to be a part of this, please,’” Baker said.
Launched last month, “Unity” will provide up to US$50 million (£39.8 million) in hull and separate protection & indemnity (P&I) war risk insurance underwritten by Lloyd’s of London insurers.
The program aims to enable shipowners to get coverage to transport grain and other goods by sea from Ukraine, which relies heavily on revenue from its agricultural exports, in the absence of safe corridors.
Baker spoke to Insurance Business about the challenges of putting together the facility’s “unique” structure and collaborating with the Ukrainian government and Western financial entities.
“We have done something like this 20 years ago, but not for a country that was physically at war,” he said. “That’s a key differentiator here. But it’s also created a huge challenge.
“The issue of getting money out of a country like Ukraine, and especially when it’s at war, is very difficult. So, finding a mechanism where everybody trusts what’s going on has been part of the challenge.”
Marsh McLennan collaborated with the Ukrainian government, the Export Credit Agency of Ukraine, Ukreximbank, Ukrgasbank and DZ Bank to provide affordable war risk insurance under the marine facility.
The facility is backed by the Ukraine ministry of the economy. Ukreximbank, the state export-import Bank of Ukraine, and state-owned Ukrgasbank will provide standby letters of credit, confirmed by DZ Bank.
“It has taken up a fair amount of time, but if we can have some success in reducing the price of the grain shipments coming out in Ukraine, the advantage that’s going to have for the world and global food scarcity is payment enough,” said Baker.
Baker also spoke about the significant impact of support from the UK government and Lloyd’s of London.
“We’ve been very fortunate to get that support level from Prime Minister Sunak and others as we’ve been going through this process,” Baker said.
“It’s great for us to have that backing and to have an entity like Lloyd’s being the main driver of the intellectual property on this. That has created a huge amount of positive feeling.”
The launch of “Unity” follows Marsh McLennan’s earlier commitment to provide its services and expertise, pro bono, to the Ukrainian government.
The ongoing efforts include the creation of a data platform to assess war risks in Ukraine, strategic advisory services from Oliver Wyman, and catastrophe reinsurance modelling from Guy Carpenter.
“We’ve already developed a strong relationship with the Ukrainian government, and we want to maintain that - we’d like to build on it,” said Baker.
Though Baker acknowledged the considerable benefit of a facility of this scale, he said the market was still taking a substantial risk.
“Because of the financial support that the Ukrainian government has given, the market will be able to reimburse themselves if there is a claim, but that’s finite. The market must take on a level of risk,” he said.
Asked whether Marsh was preparing for significant losses to come from the facility, he said: “We are hoping that [the limit] doesn’t get exhausted, and if it does, we’ve got some other irons in the fire that will help us to either replenish that or expand it further.
“It’s a balance, and as I’ve said to a few people, every day is different in Ukraine. So, monitoring the rates, figuring out the most appropriate rate for ships travelling up there, is something that we’re going to have to keep our eyes and ears on.”
Despite the financial risks of a program like “Unity,” there is also a tremendous moral reward, Baker added.
“Insurance is one of those industries that rarely gets any positive press,” he said.
“It’s not often that we’re in a position to be considered a great enabler. This is a fantastic example of how this industry can serve the world and do some good.”
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