10 million for the ruins: how businesses can get compensation for a destroyed enterprise
29 October 13:30
The government is launching a mechanism to compensate business for war risks. This is a kind of insurance against the destruction of an enterprise as a result of missile and drone strikes, air defense debris, fires, explosions, and shock waves. Although business insurance against war risks is also planned to be introduced. What amounts are involved and who can count on compensation, found out
The Cabinet of Ministers has decided that companies in the frontline regions will be able to receive up to UAH 10 million in compensation for damaged or destroyed property as a result of attacks. The destruction or damage must be recorded and documents submitted to the Export Credit Agency (ECA), which will calculate the damage so that the injured party can receive compensation up to UAH 10 million.
This is a paid procedure – when submitting an application, an entrepreneur pays a one-time fee of 0.5% of the declared amount of the alleged loss to the account of the Export Credit Agency (ECA). Upon receipt of the compensation, the state will be entitled to claim the corresponding amount of damages from the Russian Federation.
According to the Ministry of Economy, the mechanism will apply to entrepreneurs operating in high-risk areas – in Dnipropetrovs’k, Donetsk, Zaporizhzhia, Mykolaiv, Odesa, Poltava, Sumy, Kharkiv, Kherson and Chernihiv regions. Businesses will be able to receive partial compensation for the cost of damaged or destroyed property, such as buildings, warehouses, equipment, etc.
The maximum amount of compensation will be up to UAH 10 million, but no more than the actual damage. If the company has already received compensation or assistance from the state or local budget, the amount of payment is reduced by the amount of previously received funds.
However, not only companies in the frontline regions can count on compensation, as missiles and drones are flying all over the country – you can insure your property all over Ukraine.
“According to a model similar to the 5-7-9% program, the state will compensate part of the cost of insurance premiums under war risk insurance contracts to reduce the tariff for business to 1%. For example, if an enterprise in Rivne region insures property worth UAH 50 million at a rate of 3%, the state will cover two-thirds of the cost of this insurance – but not more than UAH 1 million per year,” said First Vice Prime Minister Yulia Svyrydenko.
The company chooses an insurance company, enters into an agreement with it for insurance against military risks and pays the insurance premium (the cost of the policy), the Ministry of Economy clarifies.
Upon expiration of the contract, the business will be able to apply to the ESA and receive compensation for part of the payment – up to UAH 1 million. For each application, a fee of UAH 5,000 is paid to the ECA account.
Individual entrepreneurs and private sector legal entities will be able to use the mechanism. The following cannot participate in the program: state-owned and municipal enterprises, non-residents of Ukraine, companies under sanctions or affiliated with Russia or Belarus, companies with tax debts or those in bankruptcy.
Those who have already suffered will receive nothing
According to economic expert Oleg Pendzin, compensation for losses will apply to those who will suffer after the adoption of this resolution. It is unlikely that this will be done retroactively. That is, those who suffered before this period will not be able to count on compensation. And, most likely, this mechanism will not start working until January 2026.
“Unfortunately, there is no government resolution with the developed mechanism yet to assess it. So far, we can only judge from the statements of the Cabinet of Ministers. Most likely, this compensation for damaged or destroyed property will primarily concern military-industrial enterprises or large manufacturers,” said
[Kommersant] Oleg Pendzin said in a comment to "Komersant Ukrainian".
“If we are talking about compensation for damaged or destroyed property up to UAH 10 million, this is a drop in the bucket. Recently, a medicine warehouse in Kyiv was hit by a plane, and the damage amounted to $100 million. uAH 10 million will in no way cover the costs. And if we take large enterprises where one machine costs more than UAH 10 million,” the expert emphasizes.
Insurers have a limited budget for payments
As for business insurance against war risks, it is a long-overdue issue. But the problem is that insurance companies may not be able to pay out multimillion-dollar claims. Although the lease of state-owned space requires mandatory insurance when concluding a contract, this has mostly been the case for fires and other natural disasters.
At the same time, many insurance companies have already decided to sell war risk insurance policies to businesses, subject to certain conditions. The main one is the exclusion of territories located closer than 100 kilometers from the nearest point of the war zone and/or territories under temporary occupation. The insurance company can also independently decide to refuse to accept an object in certain territories.
“We understand that we will not be able to fully compensate for the possible billions of dollars of losses from the war, but we want to be close to our clients during the onset of war risks and share some of the possible costs with them,” said Maxim Mezhebytsky, First Deputy Chairman of the Board of ARX.
Objects of insurance: buildings and structures with finishing and communications, integral property complexes, as well as equipment, office equipment, and inventory.
According to the insurers, the amount of compensation depends on the terms of the contract and may vary depending on the circumstances.
“However, only clients from the rear regions where there is a threat of drone or missile attacks can include war risks in the insurance contract. The fact is that it is extremely difficult to objectively calculate insurance payments for a region where enemy artillery is constantly operating (on the front line),” noted Insurance Advocate.
But, as insurers recognize, Ukrainian insurers lack the equity capital to offer insurance coverage against large losses. Therefore, they cannot do without government support.
However, even state payments for insurance risks require funds in the budget. It is not yet known from which expense item they plan to compensate for the losses.
Author: Alla Dunina
