The Ministry of Economy and Environment of Ukraine, in constant dialogue with business, is working on solutions that will promptly help enterprises continue their work and recover after Russian attacks. In response to the request of entrepreneurs, the Government has already introduced a package of support for businesses that suffered as a result of shelling. In parallel, the Ministry of Economy is working on a new systemic mechanism for compensating business for war losses, which should expand the capabilities of large enterprises to restore damaged assets and production.
The goal of the initiative is to maintain and restore economic activity: to provide enterprises with the opportunity to more quickly resume production, trade, and save jobs, while simultaneously creating conditions for expanding the private market for insurance of war risks. According to preliminary estimates, annual losses of fixed assets of businesses as a result of the war may amount to $4-10 billion or more, while the current capacity of the insurance and reinsurance market is up to $1-1.5 billion with the impossibility of insurance in risky regions with completely absent coverage in frontline regions and more risky sectors
In the absence of market mechanisms and the extreme criticality of the speed of the decision, the key element of the new mechanism should be a special fund to compensate for business losses with a target volume of about $3-4 billion. The fund is planned to be replenished from several sources: state funding, in particular from the proceeds from the proposed increase in the general VAT rate by 1%, funds from international partners and contributions from companies for participation in the program. Approximately $1 billion is planned to be provided from state funding, another $2-3 billion to be attracted from international partners.
On the basis of the fund, it is proposed to introduce a First-loss mechanism, under which the state will compensate for the first layer of war losses within the established limit. The enterprise will be able to insure the risk exceeding the state limit on the private insurance market. Such a model should simultaneously provide business with access to compensation and create the prerequisites for expanding the private insurance and reinsurance market for war risks.
The mechanism provides for:
– Compensation for losses up to $10 million per legal entity from the state;
– Participation of large, medium and small businesses throughout the territory controlled by Ukraine;
– Coverage for assets that ensure the operation of the enterprise – buildings, equipment and engineering networks;
– The enterprise’s contribution for participation in the program – 2% of the selected coverage limit;
– The possibility of additional insurance of that part of the risk that exceeds the state level of coverage.
At the first stage, it is proposed to extend the mechanism to enterprises in the processing industry, agricultural sector, transport, water supply and energy, healthcare, education, trade and extractive industries. The program is expected to be administered through the Export Credit Agency using the already established infrastructure for compensation for war losses.
In the event of damage or destruction of assets as a result of Russian aggression and after submitting a full package of necessary documents, decisions on compensation and its payment should be made within 30 calendar days, with the possibility of extending the period to 60 days.
A separate element of the model is the involvement of the private insurance market. The state will cover the first level of losses, which should reduce risks for Ukrainian insurers and international reinsurers and allow them to provide additional coverage above the limit set by the state. Thus, the state mechanism should create conditions for increasing the availability and capacity of insurance.
To ensure transparency of the mechanism, it is proposed to strengthen the ECA Supervisory Board, create a public dashboard with data on the receipt, use of funds and payments of the fund, conduct regular independent audits, and also create a public council under the Ministry of Economy and Environment of Ukraine.
Currently, the financial and operational model of the mechanism is being developed jointly with the Ministry of Finance, the National Bank of Ukraine, the ECA, and representatives of the insurance market and international partners (the World Bank, the British government, international brokers and insurers). The model is currently being validated with market participants, the next stages should be: determining the necessary legislative changes and sources of financing, adopting the appropriate regulatory framework, and testing the operational model. Subject to the adoption of the necessary decisions and regulatory framework, the benchmark for launching the mechanism is January 2027. The proposed mechanism will be improved and supplemented throughout the year. (Economy Ministry)