War-Risk Insurance Is Increasingly Becoming Part of Business Credit Protection

Entrepreneurs taking out loans to purchase expensive equipment, machinery or vehicles should consider not only the interest rate and monthly payment before taking out a loan, but also the cost of insuring the property against war-related risks.

This was reported by Oksana Shulha, Director of the Small and Medium-Sized Business Department at GLOBUS BANK.

According to her, both commercial insurance products and government mechanisms for compensating part of losses and insurance premiums are already available in Ukraine. In September, the government further expanded the war-risk insurance programme for businesses and simplified the mechanisms for receiving compensation.

At the same time, it is important for entrepreneurs to understand the approximate cost of such protection in advance. For companies that have already used the government programme, the average insurance rate was 4.24% of the value of the insured property, while after compensation, the actual burden on businesses fell to an average of 1.19%.

Separate insurance solutions are already available for vehicles as well. According to Oksana Shulha, the bank currently insures vehicles not only under comprehensive motor insurance (CASCO), but also provides additional coverage against war-related risks. Depending on the lending terms, the insurance rate for such coverage is approximately 1.5–1.7% of the vehicle’s value.

For example, if a business takes out a loan to purchase a vehicle worth UAH 2 million, war-risk insurance at such a rate could cost approximately UAH 30–34 thousand. This is already a specific amount that an entrepreneur should take into account when calculating the total cost of the credit project.

That is why, in the banker’s view, the cost of insurance protection, the potential amount of compensation and the specific terms of war-risk coverage should be factored into the lending model from the outset.

“When an entrepreneur takes out a loan of several million hryvnias to purchase equipment, they need to think not only about how they will repay the loan. They also need a Plan B: what will happen to the business and the loan if the property is damaged or destroyed. Insurance, liquidity reserves, asset diversification and energy autonomy are becoming just as important today as the interest rate and the size of the down payment,” — the expert believes.