Placing D&O Insurance in Russia | woodruff sawyer
In our work with multinational companies, we regularly place insurance programs with locally recognized policies around the world, including in Russia. However, on March 15, 2022, Vladimir Putin signed a law prohibiting reinsurance transactions with “hostile states”, i.e. insurers from the United States, United Kingdom, Europe and Europe. other countries that condemned his invasion of Ukraine.
As the insurance industry adjusts to this new environment, many of our customers are wondering what this means for their D&O insurance program and what alternatives may exist.
Place a local A&D insurance policy
Let’s review why companies buy locally admitted D&O policies in the first place. D&O insurance is considered personal and the fundamental purpose of the business is to protect individuals against personal liability. Some countries require an insurance policy taken out in that country to pay any claims in the country. This is sometimes referred to as an “admitted insurance” requirement.
Acceptable insurance is subject to local taxes and is designed to comply with local laws. Sophisticated companies with a global footprint often find it beneficial to place their insurance with large global insurers who can provide locally recognized coverage that matches the company’s footprint. Some of the benefits of this type of program are ease of administration, consistent policy terms, and the ability to pay claims in-country with a strong insurer partner.
Multinational programs are underwritten globally. Then policies are issued with “local insurers” which are usually a combination of owned offices and network partners. The local insurer reinsures or retrocedes the local exposure to the global policy. As a result, the premiums allocated to local policies tend to be modest. In addition, local policies usually also have lower limits; $1 million or $2 million is common. However, the primary police sit in excess of the local police on an unadmitted basis.
As of today, most global insurers will not be able to provide a local D&O policy under the multinational placement in the future. If you have a policy in place now, that policy is probably still valid, which means local Russian insurance should be able to pay a claim in Russia. However, the police would not benefit from the reinsurance of the global insurer.
Current local policies in Russia cannot be renewed when they expire.
What are the alternatives ?
Russian entities will now have to look to sourcing domestic cover in Russia from a local Russian broker and insurer. The Bank of Russia announced an increase in the capacity of the Russian National Reinsurance Company to expand the ability of Russian carriers to reinsure domestic risks. However, capacity is likely to be limited.
Another question: how do the terms, conditions, premiums and claims payment of the policy compare to a multinational solution? The conditions will probably be more restrictive; premiums and availability of insurance will vary depending on the risk profile of the business.
What kind of insurance placement process should we expect?
One of the advantages of a multinational program is that the information required for local underwriting is minimal. We expect that to change for those looking for a local policy in the Russian domestic market. Instead, be prepared to complete a comprehensive application and provide the most recent financial statements, organizational chart, and any required Know Your Customer (KYC) and Anti-Money Laundering (AML) documentation. Typically, this will be a more onerous process and may require multiple rounds of information gathering.
How do you choose a Russian broker?
Shortly after Russia invaded Ukraine, several global insurance brokers announced their intention to leave Russia. Some are in the process of transferring the business to local management independent of their global owners. As part of the Assurex network, Woodruff Sawyer partners with independent brokers around the world. The member of the Assurex network in Russia is GreCO, a national insurance broker. GreCO continues to operate and can help national businesses navigate the new environment.
If you have an existing brokerage relationship, verify its ability to continue providing services. The change with the new law means global brokers are unable to guide the transition. All advice and assurances must be contained in Russia.
How to choose a Russian insurance company?
In some cases, the local insurance company providing the D&O policy in Russia may now be able to support this placement independently of the global program that was supporting the local program. Terms and premiums may change, but this is a good starting point to build on an existing relationship. Using the existing insurance relationship can also help with required underwriting information and the premium payment process.
Managing global risk has always been a complex process. The current geopolitical situation highlights the challenges multinational corporations face when trying to protect their directors and executives around the world. While this article has focused on the insurance logistics of Russian subsidiaries, the human tragedy of the invasion of Ukraine comes to the fore. Our hope at Woodruff Sawyer is that a diplomatic solution can be found quickly and the process of reconstruction can begin.
For more information on handling insurance issues in light of Russia’s invasion of Ukraine, click here to watch our recent webinar on this topic.