Oliver Wyman’s Ellison: $100bn early target for industry Ukraine Development Fund

The scale of investment needed to enable Ukraine to recover and transform into a “modern and free society and economy” cannot be realised without the support of the insurance industry, according to Oliver Wyman’s public sector practice partner Crispin Ellison.

Speaking to The Insurer TV following the recent Ukraine Recovery Conference in London, Ellison highlighted some of the challenges in engaging (re)insurance capital to support the country’s recovery given that the conflict with Russia remains ongoing.

But he said it was critical that insurance capital is mobilised to support Ukraine if it is to attract the necessary investment to achieve its recovery goals.

Changing the narrative

In order to better understand the challenge ahead, Ellison highlighted the need for the narrative to evolve around what Ukraine is trying to achieve.

“The narrative on Ukraine remains very military and security focused, and focused on the short term. There is not yet a strong narrative out there stating what Ukraine is trying to do – it's not just trying to rebuild, it's trying to transform and go on a journey to join the European Union and become a modern free society and economy,” he explained.

Ellison said the West can draw lessons from the war in Iraq and the turmoil that followed, where “we won the war and lost the peace because we didn't plan for the peace”.

To rebuild and transform Ukraine in this way will take investment at a huge scale. The World Bank assessed the level of investment required at $400bn+ in March, with the need rising to around $1trn if areas of Ukraine occupied by Russia are included.

The Ukrainian Ministry of the Economy is currently in the process of creating a Ukraine Development Fund which will provide a conduit for this investment. Ellison believes $100bn is a likely early target for this fund.

Ellison said it was clear that investment at scale could not take place without insurance. The insurance industry has, however, never previously provided war risk cover at this scale.

“A situation where we are talking about hundreds of billions of investment insuring against war risk is not something the industry has done before,” he said.

Ellison acknowledged there will be some reluctance, given that many companies have incurred losses over the past couple of years in Ukraine and that Russia remains one of the most powerful nations in the world.

In addition, there remains competition for capital and many carriers may see more profitable options for deployment given current market conditions.

Building insurer confidence

A critical step in building industry engagement will be improving data supply so that insurers can differentiate between risks.

To address this, Marsh McLennan has agreed to work on a pro bono basis to “design and deliver a risk data platform that will allow insurers to assess and underwrite war risks in the country with greater confidence”.

Ellison said it was critical to build industry understanding around the wider risk landscape in Ukraine.

“At the moment, most people think that most of Ukraine has been really severely damaged. But last month, I spent a week in Kyiv and in the central square mile or two of the city I saw only two damaged buildings,” Ellison said.

While he accepts it is unlikely anyone will insure on the front line, Ellison says parts of Ukraine are relatively safe.

“If you can actually demonstrate that a big city like Lviv in the West hasn't been hit that much, then suddenly you can start to get investment and insurance.

“The question is how we can share that data with the insurance industry without jeopardising security, allowing the industry to build their models so that actuaries can assess risk more effectively.”

Engaging the insurance industry

Ellison said international financial institutions could meet some of the initial insurance needs while the war is ongoing.

“They need to continue to repair their electricity grid. Siemens is shipping in big generators to do that – they need insurance cover for these immediate repairs, such as the dam catastrophe.

“Most of that can be provided by international finance institutions such as the World Bank’s Multilateral Investment Guarantee Agency, the European Bank for Reconstruction and Development and other export credit agencies. They can provide short-term underwriting for these repairs but none of their models will scale.

For investment at scale, Ellison said it was critical to engage the insurance sector.

“We have a system for transferring risk at scale – it's called the insurance industry. If you want to do this at scale, you have to engage the insurance industry. But the insurance industry will not engage at scale without some form of backstop.”

But as he discusses during the interview, governments remain reluctant to commit their balance sheets towards public-private backstops.