Ukraine's Wartime Economy Faces Critical Insurance Gap

The focus of Ukraine’s economic strategy is shifting from attracting new investment to ensuring the survival of existing operations. As Russian drone attacks intensify across the country, particularly in and around the capital, the immediate priority has become keeping supply chains for food, retail, and healthcare functional. Deputy Economy Minister Yegor Perelygin stated that the challenge is no longer just about raising capital, but about maintaining the businesses required for daily survival.

The scale of the damage is significant, with the Economy Ministry estimating that Ukrainian businesses will lose approximately $10 billion this year. Companies report that equipment is destroyed and stocks are turned to ash, leaving many to rebuild with limited resources. Without state intervention, business leaders warn that the resulting vacuum could lead to widespread defaults and severe inflation, threatening the stability of the entire national economy.

Insurance Barriers Exclude Most Firms

A major obstacle for small and medium-sized enterprises is access to war-risk insurance. While large international corporations can afford comprehensive coverage, the premiums are generally out of reach for the vast majority of domestic companies. A survey by the European Business Association indicates that current insurance costs are prohibitive for 94 percent of businesses in Ukraine. This leaves most companies vulnerable to the financial shock of a single strike, as they lack the safety net required to recover quickly.

State-Backed Compensation Fund Proposed

To address this gap, the government is developing a compensation fund designed to cover initial losses of up to $10 million per incident. The mechanism aims to lower the barrier to entry for insurers and expedite payouts, with compensation expected within 30 days of documentation. Starting in January, businesses in critical sectors such as agriculture and energy will be able to join the program by paying a fee equivalent to two percent of their chosen compensation limit, protecting fixed assets like critical equipment and property.

VAT Hike Sparks Business Pushback

The financing plan for this fund involves raising the value-added tax rate from 20 percent to 21 percent. Officials estimate this will generate $1 billion annually, though it is expected to increase consumer prices by 0.6 to 0.8 percent. However, business leaders argue that tax increases should be a last resort. Reiner Perau, CEO of the German Chamber of Commerce in Ukraine, stated that the government must demonstrate it has exhausted other viable options, such as improving tax collection efficiency, before imposing higher costs on the broader economy.