London has announced its decision to prohibit Russian entities in the aviation and space industries from accessing its insurance market as part of sanctions against Moscow for invading Ukraine.
“The UK Government will bring in legislation to prohibit UK-based insurance and reinsurance providers from undertaking financial transactions connected with a Russian entity or for use in Russia,” the treasury department said on March 3.
“Further details of the legislation will be available in due course. Coupled with similar actions by the EU, this move further isolates Russia’s economy from the international financial system,” it said, adding that the sanctions demonstrate the UK’s “commitment” to subject Russia to “severe economic sanctions.”
The UK is a leader in insurance and reinsurance services with firms like Lloyd’s of London, a major player in aviation insurance. Insurance services for marine, aviation, and transport netted Lloyd’s 3 billion pounds ($4.01 billion) in gross written insurance premium in 2020, with reinsurance bringing in an additional 1.5 billion pounds ($2 billion).
“We are in regular communications with the UK government and international regulators, and are working closely with the Lloyd’s market to uphold the implementation, at pace, of sanctions applied by governments around the world,” said Patrick Tiernan, Lloyd’s Chief of Market, reported Reuters.
It is unclear whether the UK’s new rules would require insurers to only avoid new transactions or cancel existing contracts. The legislation will be brought forth before the parliament in coming days, with the rules potentially being implemented as early as next week. The UK, like the European Union, has avoided imposing sanctions on Russian shipping as it would add upward pressure to already-high energy prices.
Cut off from UK insurance providers, Russian aviation businesses are likely to look for coverage elsewhere, such as China. Fearful of sanctions, other western insurers are expected to avoid getting into Russia-related contracts.
Global insurers have stopped issuing certain insurance to companies that trade with Russia. When Jerry Paulson, senior vice president at Chicago insurance brokerage HUB International Ltd., attempted to secure political-risk coverage for an industrial client from the United States that has a factory and several distribution centers in Russia, he found it difficult to secure insurance, with six insurers turning down his client or pausing talks.
“It’s amazing how quickly the spigot turns off in our world,” Paulson told The Wall Street Journal. “Everything is coming to a halt, and this is just one more thing that will negatively affect commerce with Russia.”