Controversial Draft Law on War Risk Insurance: An Overview of Key Advantages and Shortcomings
At the end of 2024, the Verkhovna Rada of Ukraine took up for consideration a long-anticipated draft law that promises to become one of the most high-profile legislative developments of 2025 in the market — the Draft Law of Ukraine “On the System of War Risk Insurance” No. 12372 (hereinafter – “Draft Law No. 12372”). According to its authors, the draft law aims to “regulate relations in the field of war risk insurance in order to protect the insurance interests of individuals and legal entities” and to “ensure compensation for damage caused to such persons as a result of the materialization of war risks in Ukraine.”
Draft Law No. 12372 has already sparked considerable resonance within the professional community. Both legal and political debates are unfolding around it, and its key provisions are receiving mixed reviews. We have analyzed the main advantages and shortcomings of this legislative initiative and what to expect from the war risk insurance system in the event of its adoption.
Mandatory Insurance – Which Assets and Sectors Will Be Affected?
The Draft Law No. 12372 establishes the general principles of the war risk insurance system in Ukraine and sets out the conditions and procedure for concluding insurance contracts in the war risk insurance system, in particular, it sets out the list of objects subject to mandatory war risk insurance.
The possibility of compensation for losses related to war risks is undoubtedly a key advantage, as it would reduce the financial burden on policyholders in the event of insured events. Draft Law No. 12372 effectively introduces a state-administered system of war risk insurance, which could potentially stimulate both domestic and foreign investment, as investors would benefit from at least partial guarantees for the protection of their assets. This could have a positive impact on the investment climate in Ukraine.
At the same time, one of the main characteristics of the new insurance system should be that insurance will be mandatory for a certain list of objects. This will create an additional financial burden for future insurers and potentially discriminate against some sectors of the economy over others. The Draft Law No. 12372 does not contain an exhaustive list of objects that are subject to mandatory insurance. Such objects include property pledged/ mortgaged to banks (for the entire term of the pledge/mortgage agreement), as well as construction objects (for the entire period of new construction, reconstruction, and overhaul). This includes state-owned, private and foreign property, including residential real estate to be restored, and movable/immovable property pledged as collateral for loans to individuals and legal entities.
Mandatory insurance will have an impact on the construction industry, as the obligation to insure all objects under construction, reconstruction and overhaul will increase the costs of developers, who are likely to pass them on to investors. In addition, mandatory insurance of collateral will obviously have an impact on the cost of secured bank financing for businesses in those sectors of the economy that are traditionally active borrowers of banks, such as trade, agriculture, food and other industries1.
It is worth emphasising that currently, Draft Law No. 12372 does not provide any criteria for mandatory insurance against war risks of collateral. In fact, not only real estate, but also securities, corporate rights, property rights of claim, etc. will be subject to the insurance requirement, but the feasibility of insuring such objects that cannot be destroyed or damaged as a result of hostilities is questionable.
In this regard, businesses, as potential future insurers, have commented that war risk insurance should be voluntary, but such proposals have not yet been supported by the regulator.
Creation of the State Agency for War Risk Insurance
Draft Law No. 12372 provides for the creation of a specialised institution responsible for ensuring the functioning of the war risk insurance system - the State Agency for War Risk Insurance (the ‘State Agency’). It is envisaged that state control and supervision over the State Agency will be vested in the National Bank of Ukraine (the ‘NBU’).
In international practice, there are already cases of establishing separate state agencies for war/political risk insurance. For example, SASRIA, a public joint-stock company of the Republic of South Africa, is an insurance company that provides special risk coverage to all individuals and legal entities that own assets in South Africa, as well as to government agencies, in particular against ‘special’ risks, such as politically motivated malicious acts, civil unrest, strikes, terrorism, riots, etc. Such insurance is not mandatory, so the policyholder has the right to purchase coverage at his or her own discretion. SASRIA offers two levels of insurance coverage:
- Primary Cover provides insurance for clients' assets up to ZAR 500 million (approximately USD 27 million);
- for corporate clients, Wrap Cover is available, which allows for an increase in the coverage limit of up to ZAR 1 billion (approximately USD 54 million).
Among the sources of funding for the State Agency, Draft Law No. 12372 provides for, inter alia, insurance premiums under insurance/reinsurance contracts, grants, reparations, recourse funds from persons responsible for causing damage (losses), budget funds if provided for by the Law “On the State Budget of Ukraine”, funds from third parties on a repayable or non-repayable basis, including from international financial organisations, and technical assistance. Neither the amount of the State Agency's capital nor the amount of its funding from the state budget is established by Draft Law No. 12372.
At present, it is difficult to say whether the funding model for the State Agency envisaged in Draft Law No. 12372 will be viable. During the public discussion of Draft Law No. 12372, the NBU representatives announced the expected premiums of the State Agency at USD 50 million in the first year and USD 55 million in the second year of operation. Loss coverage in the first year of insurance is expected to be USD 17 million, and in the second year - USD 35 million. These are the approximate estimates provided by the NBU, and it should be noted that they are also based on the presumption that the limit of liability for each insured object will be limited (currently, a limit of up to USD 2 million is being discussed). It was reported that, based on the KSE Institute's research on housing losses from direct hostilities in the second half of 2023, a (catastrophic) scenario was modelled to assess the capital needs of the State Agency, according to which it is projected that the State Agency will incur losses during the first two years of operation, and only starting from the third year of operation will the State Agency be profitable. The NBU estimates that the State Agency will need to raise at least USD 130 million in addition to the insurance premiums accumulated in the future to cover its losses. The prospects of financing the State Agency from other sources mentioned in the Draft Law No. 12372 are difficult to assess: compensation for losses by the Russian Federation has not yet been clearly defined; the amount of grant support may be unpredictable and volatile, etc.
Insurance by template - what can go wrong?
One of the main tasks of the State Agency will be the development and approval of standardised insurance products. On the one hand, this may ensure transparency and predictability of insurance for future insurers, speed up and simplify the process of concluding insurance and reinsurance contracts, as the parties will not need to agree on all the terms of the contract each time. A standardised insurance product must clearly define the procedure and terms of insurance against war risks, including the forms of documents and essential terms of the insurance contract, which cannot be changed and are binding on the parties to such a contract. The general terms and conditions of a standardised insurance product and the insurance contract must comply with the requirements of the Law of Ukraine “On Insurance” and the legislation. On the other hand, strict standardisation of insurance products may limit the flexibility of the insurance market and make it impossible to develop individual solutions to the needs of individual insurers in contracts for specific risks of certain industries or projects. Therefore, it is important to strike a balance between the consolidation of standardised insurance products and preserving the possibility of individualising insurance terms and conditions in cases when it is necessary.
The Draft Law No. 12372 establishes the right of insurers to enter into individualised insurance contracts covering war risks other than those concluded within the war risk insurance system, including in respect of objects not required to be insured by the Draft Law No. 12372. It is foreseen that such contracts must be concluded in accordance with the requirements of the Law of Ukraine ‘On Insurance’.
This also provides for cases when the State Agency will establish in a standardised insurance product a special procedure and conditions for accepting objects for insurance and terminating the insurance contract. However, this applies specifically to those facilities that will be located in a high-risk area as of the date of the contract or whose location will be in a high-risk area during the term of the insurance contract.
War risk insurance for objects that are subject to mandatory insurance on terms of insurance coverage that do not comply with the terms of a standardised insurance product will be prohibited. The prohibition is quite strict, but in the absence of a draft standardised product, it is difficult to predict whether it will create any problems for insurers in practice.
Shortcomings and gaps in Draft Law No. 12372
Despite the generally positive trend towards the introduction of a war risk insurance system in Ukraine, certain aspects of Draft Law No. 12372 require clarification, refinement or amendment.
Thus, the document states that insurance against war risks will be carried out on the basis of a standardised insurance product to be approved by the Cabinet of Ministers of Ukraine upon submission of the State Agency and in agreement with the NBU.
However, the text of the Draft Law No. 12372 does not provide for the essential terms of such a standardised product or its form, which makes it impossible to assess in advance the depth of regulation of the relevant legal relations and the extent to which insurers and insureds will be able to determine the terms of insurance at their discretion. At the same time, it is stipulated that such terms and conditions must comply with the provisions of the legislation of Ukraine. By analogy with the essential terms of an insurance contract, the essential terms of a standardised product could be at least the subject matter of the contract, the insured event, the sum insured, the amount of the insurance premium and the timing of its payment, and the contract term. This would make the new product a more predictable instrument for the market.
The Draft Law No. 12372 does not define the principles of tariff setting under which the State Agency will operate. In addition, as of the date of this publication, provisions on the limits of insurance coverage that may be set for insurers have not been included in Draft Law No. 12372. The absence of such provisions makes it difficult to understand the economic model of the war risk insurance system, its financial stability and predictability for market participants. Therefore, it would be advisable to provide for the maximum parameters of insurance coverage and regulate the basis for financing and tariff setting at the level of the law or by reference to bylaws.
The version of the Draft Law No. 12372 dated 31 December 2024 included provisions that stipulate the possibility of insuring facilities in high-risk territories, i.e. territories where active hostilities are being conducted with a state that is carrying out or has carried out armed aggression against Ukraine, within the meaning of the Law of Ukraine ‘On Defence of Ukraine’, or temporarily occupied by such a state, and/or other territories defined in a standardised insurance product by the State Agency as a territory with a high risk of war risks. Such insurance, although will not be mandatory, may provide additional protection for businesses that continue to operate in these territories and help reduce financial losses associated with war risks.
Despite the existence of a definition, the term ‘high-risk territory’ in Draft Law No. 12372 was interpreted rather vaguely as ‘the zone of active hostilities or temporary occupation’, as well as ‘other territories that may be defined in a standardised insurance product by the State Agency’. For some unknown reason, the authors of Draft Law No. 12372 decided not to define the high-risk territory using the terms ‘contact line’ and ‘temporarily occupied territory’, which are already provided for by the current legislation, in particular the Law of Ukraine ‘On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine’, as well as the term ‘territory of active hostilities’, which is found in the List of territories where hostilities are (were) conducted or temporarily occupied by the Russian Federation, approved by the Order of the Ministry of Communities and Territories Development of Ukraine of 28 February 2025 No. 376. Thus, it is unclear how the relevant territories will be correlated and at what distance from the contact line insurance coverage will be possible. Therefore, it would be appropriate to finalise the definition of ‘high-risk territory’ in Draft Law No. 12372, using the terms already existing in Ukrainian legislation. It is also worth paying attention to the need to clearly define by the State Agency in a standardised insurance product the distance from the line of combat contact at which it will be possible to obtain insurance against war risks.
Another significant drawback is that the document defines insurance risks only through the prism of material damage, focusing on physical damage and/or destruction of property. This approach significantly narrows the scope of its application and does not take into account other significant risks that businesses may face during hostilities. At the same time, in international practice, an approach that covers not only the physical destruction of property but also other political risks of CEND is common: expropriation - the forced seizure of property with compensation (requisition) or without it (confiscation); nationalisation - the transfer of private property to state ownership; deprivation - actions that actually deprive the owner of the ability to use or dispose of his property, even without formal seizure. Even if such risks are not included in the final version of Draft Law No. 12372, it would be advisable to add them in the future.
Assessment of the Potential for Implementing a War Risk Insurance System
Overall, Draft Law No. 12372 is a timely and anticipated legislative step under the conditions of martial law in Ukraine. Although some insurers began offering war risk insurance as independently developed products as early as 2023–2024, such offerings remain very limited both in terms of the insured objects and the coverage limits. Draft Law No. 12372 establishes a legal foundation for the introduction of a broader mechanism for compensating war-related losses in Ukraine. This creates hope for a more comprehensive protection of the interests of consumers and businesses, as well as an improvement in the country’s investment climate.
At the same time, the concepts and approaches laid out in Draft Law No. 12372 require further refinement. In particular, critical issues remain unresolved, including the narrowing of the scope of mandatory insurance coverage, the introduction of voluntary insurance in certain cases, clarification of the content and format of the standardized insurance product, as well as the regulation of the activities of the State Agency. In addition, there is currently no unified approach to the formation and valuation of the list of insurable objects. It is expected that such information will be based on open data, banking reports, and World Bank studies (RDNA2, RDNA3). However, this also requires clear legislative regulation.
If its core provisions are properly finalized, the draft law may become an important component of the country’s economic recovery system. However, its fate remains uncertain, and further progress will largely depend on both political will and the legislature’s ability to consider input from the expert community and the business sector.
Authors:
Olena Savchuk, Counsel and Tetiana Buslova, Junior Associate
INTEGRITES Banking and Finance Practice
1 Data from the Financial Stability Report, June 2025, NBU (https://bank.gov.ua/admin_uploads/article/FSR_2025-H1.pdf?v=14)
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