Government proposed a new system of business support following Russian attacks

Ukrainian analytical centers called on the Cabinet of Ministers to change its approach to supporting businesses affected by Russian attacks. Instead of massive direct compensation from the budget, they propose expanding war risk insurance, introducing state reinsurance, and creating a separate direction of the “Affordable Loans 5-7-9%” program for business recovery.

The corresponding appeal to the government was released by the Economic Expert Platform.

The authors of the document note that regular missile and drone strikes lead to the loss of production and trading facilities, warehouses, logistics infrastructure, and commodity stocks. For businesses, what becomes critical is not only compensation for the value of destroyed property but the possibility of quickly resuming operations, retaining employees, and obtaining working capital.

Analytical centers believe that the state should not assume the entire amount of private losses on its own. Instead, budget funds are proposed to be used for risk sharing between businesses themselves, insurers, banks, international reinsurers, and financial organizations.

The state is proposed to reinsure the largest losses

One of the main elements of the proposal is the scaling up of war risk insurance. The existing compensation of part of insurance premiums is proposed to be made multi-year and predictable, so that businesses do not depend on whether funds remain in the annual budget limit.

At the same time, experts believe that simply subsidizing the cost of policies is not enough, since the Ukrainian insurance market cannot independently assume potentially enormous losses from massive attacks.

Therefore, it is proposed to introduce a multi-level model M3. Part of the risk would remain with the business itself in the form of a franchise of about 5-10% of the object's value. The next part would be covered by insurance companies, then the Export Credit Agency and international reinsurers.

The state would enter the system only at the last level and cover the so-called catastrophic layer – extremely large cumulative losses that the private market can no longer accept.

According to the calculations of the authors of the appeal, such a system could provide up to UAH 1.59 of insurance coverage per each hryvnia of budget resource.

It is also proposed to insure goods and raw materials

Analytical centers also call for significantly expanding the list of property that would be covered by the program. In addition to buildings and equipment, it is proposed to insure commodity stocks, raw materials, finished products, goods in transit and in production, transport, and leased property.

This is especially relevant for retail, pharmaceutical companies, logistics, and manufacturing, where as a result of a strike a business may lose not so much the building itself as large stocks of products.

To confirm the volumes of such assets, it is proposed to use digital data from the registrar of settlement transactions, accounting, waybills, and other information systems.

In addition, experts propose to create a single window for recording war damage. Information about damage should be entered into one register within 72 hours, and assessments would be conducted by independent specialists. One set of verified data could be used for insurance, credit, tax, and budget procedures.

For affected businesses they want to expand “5-7-9%”

The second main direction should be a special mechanism within the “Affordable Loans 5-7-9%” program for businesses whose property was damaged or destroyed as a result of attacks.

A state portfolio guarantee in such a mechanism could cover about 70-80% of the credit risk. The bank would retain the rest of the risk.

It is proposed to provide three types of financing: short-term loans for repair and replacement of equipment, loans for working capital and salaries, as well as long-term investment loans for modernization, relocation, and creation of reserve production capacity.

It is proposed to keep the preferential rate at 5-7% in hryvnia. Real estate financing could be provided for up to 10 years, and repayment of the principal could be deferred for 12-18 months.

It is also proposed to allow participation in such a program for large taxpayers and groups of related companies with separate limits for them.

First money to businesses should be received within a month

For businesses that need funds immediately after an attack, the authors of the appeal propose to create a special mechanism – Claims-Liquidity Facility.

It would allow advance payments even before the final completion of the damage assessment procedure – on the basis of a preliminary estimate and data from the unified register.

The indicative volume of such a mechanism is proposed to be set at UAH 3 billion, and the target median time from application to first payment – 30 days.

Also, for affected businesses, it is proposed to introduce carryforward of confirmed war losses to future profitable periods, accelerated depreciation of new equipment, tax deferrals, and exemption from taxation of certain targeted financing.

Direct compensation could cost budget UAH 78 billion

The authors of the appeal separately emphasize the fiscal effect of the proposed system. According to their calculations, direct compensation on a similar scale of losses could require about UAH 78 billion of budget funds.

Instead, the model with insurance, reinsurance, credit guarantees, and private capital participation envisages approximately UAH 8-14 billion of net budget expenditures per year.

It is expected that it will be possible to attract about UAH 30 billion of insurance premiums from businesses themselves, international reinsurance resources, and additional bank capital.

Analytical centers called on the government to create a joint working group with the participation of the Cabinet of Ministers, NBU, ECA, banks, insurers, business associations, and international financial organizations. The first procedural changes, according to their assessment, can be implemented in 30 days, pilot mechanisms – within 31-90 days, and necessary legislative changes – in 3-6 months.

Based on materials from: Economic Expert Platform