Rus-Ukeura War... "Concerns of Greater Insurance Industry Damage than 9/11 Terror Attacks"

[Asia Economy Reporter Changhwan Lee] An analysis has emerged that Russia's invasion of Ukraine is having a very negative impact on the global insurance market.

According to the report titled "The Impact of the Russia-Ukraine War on the Insurance Industry and Its Implications" by the Korea Insurance Research Institute on the 1st, Russia's invasion of Ukraine has caused a rise in raw material prices such as oil, supply chain disruptions, and increased volatility in financial markets, thereby increasing uncertainty in the global economy.

In response to Russia's invasion of Ukraine, the United States and Western countries have strengthened economic pressure on Russia by imposing economic and financial sanctions, and Russia has also taken countermeasures.

Regarding sanctions against Russia, insurance companies in the US and European countries have refused to pay insurance claims related to Russia, suspended their business operations within Russia, and are selling off assets owned by their companies in Russia.

The insurance industry expects that Russia's invasion of Ukraine will negatively affect various types of insurance, including aviation insurance, marine insurance, transport insurance, and export credit insurance.

In particular, massive losses are feared in aviation insurance. When the UK and European countries imposed sanctions requiring the cancellation of aircraft leasing contracts to Russia, Russia seized aircraft worth about 10 billion dollars leased from Europe.

The British insurance company Marsh reported that if the seized aircraft cannot be recovered, the damage could exceed the losses the insurance industry suffered from the US 9/11 attacks, potentially becoming the largest loss in the history of aviation insurance.

Since the 9/11 attacks in 2001, annual global insurance losses due to man-made disasters have rarely exceeded 10 billion dollars, but due to Russia's aircraft seizure incident, losses of 5 to 6 billion dollars, and in the worst case around 10 billion dollars, are expected.

In the case of marine insurance, Western insurance companies are canceling insurance sales for cargo shipments to Russia, Ukraine, or neighboring countries, and to control exposure to war risks, they may demand high additional premiums for ships passing through maritime areas recognized as risky zones.

There is also a possibility that Korean insurance companies may be partially exposed to these impacts. Looking at the overseas business status of domestic insurance companies in European countries, currently six insurance companies (three life insurance and three non-life insurance) operate a total of five corporations and six offices in five countries (the UK, Germany, Switzerland, Italy, and Russia), with one insurance company operating an office in Russia.

As of the end of September 2021, life insurance companies operate one corporation and two offices, while non-life insurance companies operate four corporations and four offices in European countries. This suggests that domestic insurance companies operating overseas branches in European countries have direct or indirect business relations with Russia.

Currently, overseas investments account for about 12.8% of the total real estate, stock, and bond investments of domestic insurance companies (12.7% for life insurance and 12.9% for non-life insurance). The report explains that domestic insurance companies are also exposed to secondary shock effects caused by financial market volatility resulting from the Russia-Ukraine war.

Researcher Sangyong Han of the Korea Insurance Research Institute emphasized, "The Russia-Ukraine war can have direct and indirect impacts on risk coverage and financial sectors in the global insurance market, so domestic insurance companies need to continuously monitor this situation."

He added, "In the future, domestic insurance companies should refer to overseas cases to check for any unclear aspects of risk coverage when providing overseas insurance and perform risk management such as regional diversification in overseas investments."

This content was produced with the assistance of AI translation services.