When Russia launched its invasion of Ukraine in February 2022 a host of organisations were forced to implement crisis responses. Once they had stabilised their operations, many organisations then sought out predictive scenarios to understand how the conflict might unfold. They used these not only to prepare contingency plans but also to adjust business strategy.
Nearly two years later, there is no immediately identifiable route to conflict resolution but there is every guarantee both sides will seek novel approaches to shift the dynamic in their favour. Whilst the immediate crisis may have subsided for many businesses, war is inherently volatile and abhors business as usual. Despite this volatility, conflicts do exhibit many observable indicators of identifiable trends. This is why military commanders and politicians fight so hard to develop an “element of surprise”. Equally, whilst knowledge will never be perfect, organisations can monitor and review risks.
The UK government has stated that Russia systematically targeted Ukrainian energy infrastructure last winter and forecast it was potentially stockpiling long-range weapons for a similar campaign this winter, which now appears to have started. These events and warnings suggest that even with the shifting dynamics, there are risk indicators, trends, and triggers organisations can use inform their decision making.
Developments on the battlefield and beyond mean that President Zelensky has now started to speak of building capacity for a “long war”. One aspect of this will be an increase in the relative importance of economic resilience for setting the conditions for future success. Since March 2022, multinationals spanning the agriculture, metals, construction materials and food sectors have invested hundreds of millions USD into production facilities in Ukraine. These investments demonstrate that businesses do identify opportunities that might seem counterintuitive to initial perceptions of risk in unfamiliar situations. Whilst many organisations might be unaccustomed to the conflict environment, the fundamentals of risk remain the same: it is about developing broad perspectives supported by data and specialised understanding of the appropriate analytical frameworks.
Whilst many observers might assume that risk of physical damage is the greatest barrier to investment, senior officials close to the situation suggest that physical security is not the principal concern for investors. Nonetheless, in November 2023, the United Kingdom and the European Bank for Reconstruction and Development (EBRD) signed a Statement of Intent to establish a war-risk insurance scheme. Ukraine will also need to rebuild infrastructure, which the World Bank estimated would require $411 billion of investment as at February 2023. Private sector companies will be crucial but many currently struggle to get the insurance they need to be able to operate in the country. In the meantime, insurers in Ukraine are struggling to find sufficient capacity to match local market demand for basic property insurance, explicitly excluding war-risks.
Simon Aubrey-Jones, Senior Director - Broking, Regional Correspondent Manager Central & Eastern Europe, Middle East & Africa, comments:
“After the full-scale invasion of Ukraine the international market’s crisis response was to withdraw cover for the country as a whole. After nearly two years we would argue it’s time to reassess that decision. The vast majority of the country, as evidenced by the Ukraine National Security and Defence platform, has been untouched by attacks.
Companies continue to operate and investors are in discussions as to how they can invest, not after the end of hostilities, but now in order to support Ukraine in their drive for economic resilience. Provision of (re)insurance will be a fundamental element of any decision to invest; and not just insurance against war-related perils but insurance against any of the operational risks companies face wherever they are located.
In support of this investment need, WTW is working hard in the market to change (re)insurer strategy and to unlock the capacity which was withdrawn almost two years ago”.
As the conflict enters a new phase, companies will need to ensure that their planning remains up to date and crisis management plans adjusted. This means a check of all key assumptions about the conflict. Are the scenarios they planned against still valid? If so, have the relative likelihoods of those scenarios changed? If not, what do new baseline and wildcard scenarios look like? Do these scenarios show new risks emerging whilst other risks have declined? What are the positive opportunities? A “question four moment” will make sure business strategy is up to date and contingency plans remain relevant ahead of any crisis.
From a Crisis Management perspective, Patrick Rogers, Head of Risk Advisory for Alert:24, highlighted the following key areas for companies to consider :
As conflict and the risk of conflict attracts more attention across multiple regions, organisations will need to consider whether they have access to the data and analytical frameworks to build the understanding required to assess and manage their risk exposure. This ranges from curated current risk intelligence feeds, such as those provided by Alert:24 to longer-term assessments of country risk such as those offered by the WTW Political Risk Index. These provide foundational information which can be combined with expert insight and internal business knowledge to model risk, through techniques such as scenario generation and wargaming. WTW recently explored how more active simulation and exercising of geopolitical risks can help organisations build resilience in the Geopolitical Risk edition of our Outsmarting Uncertainty webinar series.