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Digital EditionBroker-Led Initiatives Help Reduce Food Export Costs from Ukraine, Promoting Global Stability
Broker-led efforts to bring down the cost of exporting grain and other foodstuffs from Ukraine are having a societal impact far beyond the country’s borders.
Work done for clients of WTW in Ukraine and the broker’s partnership with a local insurer are among the efforts that are bringing down the costs of exporting food to destinations around the world. Facilities developed by Marsh and Aon are doing much the same.
Brokers say their work with insurers, government agencies and banks to make available affordable political risk and other coverage for exports is helping lower insurance costs that have contributed to rising values of food stock shipments. There is a humanitarian benefit to this work as it ultimately lowers the cost of food products for underdeveloped nations and may stave off conflicts that could erupt over scarce supplies.
Laura Burns, SVP, head of political risk North America, and political risk product leader, Latin America at WTW, found in the United Nations’ Food Price Index an apparent link between the price of food and the potential for political violence. Such a link, which she acknowledged is debated, would suggest that lowering insurance costs, and, in turn, the cost of food, could have an impact on reducing potential violence.
“There’s been a huge humanitarian need for this,” said Marcus Baker, Marsh’s global head of marine, cargo and logistics. The work to keep costs down is benefitting the Ukrainian economy while helping feed nations in need, he added.
Burns said the situation faced by two clients that are commodity traders operating in Ukraine highlights the need for affordable political risk insurance in the country. Much of the grain and oilseeds exported by the traders goes to emerging nations, Burns said.
They source food stocks from Ukrainian farmers, store it in siloes, move it to ports and ship it out, often to countries in the Middle East and Africa that rely heavily on shipments from Ukraine to feed their populations, she explained.
Political risk insurance for her clients’ operations was unavailable in the standard market, Burns said. Finding it meant she had to turn to a source her clients were unfamiliar with: the U.S. International Development Finance Corporation (DFC).
The agency agreed to provide reasonably priced coverage for war and political violence risks as well as the threat of expropriation of assets by the Ukrainian or Russian governments. There is also “forced abandonment” coverage in the event that a deteriorating security situation means assets have to be abandoned.
“I have a passion for projects that can deliver societal benefits as a by-product of doing best by my client,” Burns said. “I see the work that we are doing in Ukraine as an illustration of that.”
WTW also formed what it called a “market first” in May of last year in a partnership with Ukrainian insurer VUSO to create a facility backed by Lloyd’s of London syndicate Markel that provides coverage for war risks inside Ukraine.
Similarly, Marsh’s Unity facility lined up with Lloyd’s and the Ukrainian government to offer war risk insurance that includes coverage for grain shipments and other food supplies.
Laura Burns, SVP, head of political risk North America and political risk product leader Latin America, WTW
And, Aon paired with the DFC to make the coverage available for the country’s agriculture and health care industries.
Baker said Unity’s work has helped to drastically reduce some war risk insurance costs in Ukraine. Additional premiums two years ago for ships in some regions amounted to around 5% of the insured value, which, he pointed out, meant the value of food cargo was inflated.
Unity launched in November 2023 in collaboration with two Ukrainian banks and other financial institutions and agencies to cover ships carrying food supplies. Written by Lloyd’s syndicates and London-based insurers, it provides up to $50 million in hull and P&I war risk insurance at significantly lower premiums than those paid to standard market insurers.
In March of last year, Unity began covering ships carrying non-military cargo. Unity began to charge additional war risk premiums of around 1.7%, far lower than the around five percent they were paying, Baker said. That meant a “dramatic reduction in freight costs,” he added.
“When you start to allow Ukrainian grain to enter the market at a competitive level, everybody benefits,” Baker said. “So that whole humanitarian piece was huge.”
When standard market insurers saw that Ukrainian banks were willing to take on some of the risk, they began to follow Unity’s lead. And now some are writing coverage at even lower rates than Unity in some cases, he noted.
Companies such as Bayer, which invested 60 million euros in seed production in Ukraine after the start of the war, have benefitted from the availability and lower costs of coverage. While he wouldn’t reveal specifics, a Rotterdam-based spokesman for the company confirmed that Bayer has been able to maintain adequate insurance to cover its exports.
And, a humanitarian effort is part of Bayer’s mission, the spokesman said, with some of its corn seed going to local farmers who use it to grow grain that is shipped to countries in need.
Meanwhile, Bayer faces the challenge of keeping its production online and exports moving during wartime. Transportation routes were reworked to make them safer and warehouses and other facilities sustained damage that had to be quickly repaired, the spokesman said. Some operations were moved to safer parts of the country and employees are required to move to bomb shelters when air raid alarms sound. &
