Good morning.
Rebuilding the private sector after a war starts with insurance, including in Ukraine. Former Commerce Secretary Penny Pritzker, now the U.S. Special Representative for Ukraine's Economic Recovery, said “a robust insurance market was essential to attracting investment in the country.” But few insurers will put a price on protecting against volatile risks if they can’t protect their own downside, too. Just look at what’s happening with property insurance in areas impacted by climate change.
That makes Aon’s first-of-its-kind insurance program in Ukraine, announced Wednesday at the Ukraine Recovery Conference in Berlin, worth a look for leaders who may never step foot in Kyiv. The global insurance broker worked with the U.S. International Development Finance Corporation (DFC) and Ukraine officials on a $50 million reinsurance program to help insurers issue war risk policies to businesses operating in Ukraine and create an additional $300 million in war risk insurance for the country’s health care and agriculture sectors.
That might sound like chump change next to the billions in aid that’s flowed into the country, but it’s critical to enabling insurers to price risk, thereby attracting private-sector capital and investments.
“In our world, you assess volatility by looking backwards—that's actuarial science—but the new world requires that and looking forward,” Aon CEO Greg Case told me. And it requires moving from products that protect against all risks to creating ones that foster the economic viability to better manage those risks.
The Ukraine deal is the latest example of new approaches to risk analytics, pools of capital and products. Aon created more than 68 parametric policies for commercial companies last year, which pay a set amount based on the magnitude of a specific event, not the losses incurred. One tech giant bought a policy that will put $50,000 into the accounts of every employee the day after a major earthquake. Aon created a bond for Jamaica that guarantees critical infrastructure will be rebuilt after a hurricane.
To be sure, everything is insurable at the right price. As Case notes, “credibility comes with other people committing to capital, not just you.” That’s why partnering with sovereign wealth funds, government agencies and other investors matters, as does designing products that connect to the needs of CFOs, talent leaders, risk managers, supply-chain leaders and others in a company. When employees know that they will be personally protected in a crisis, that can reduce stress and increase engagement. When business sees that insurance has the backing of not just a war-torn government but a government's allies, the same can occur.
“It's no longer just about the risks,” says Case. “It's interconnected risk … where you've got a set of constituents that are very different that you have to bring together.”
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Diane Brady
diane.brady@fortune.com
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