Governments must act as the “insurers of last resort” for business interruption (BI) losses from future pandemics, according to The Geneva Association, which says it is “impossible” for insurers to cover the risk.
“Governments need to take the lead in
absorbing the lion’s share of pandemic-induced business continuity risk in
order to harness the insurance industry’s proven capabilities in mitigating
risk,” the international insurance industry thinktank notes.
“The public sector had to step
in with multitrillion-dollar emergency relief measures. Governments and
insurers must work together on how to close the massive protection gap exposed
by Covid-19, with governments as the leading players,” commented Jad Ariss,
managing director of The Geneva Association.
In a new study on the options
for pandemic risk schemes, The Geneva Association says government-led solutions
could take the form of providing mandatory or voluntary direct insurance,
administered by insurers, to businesses exposed to pandemic risk, or through a
reinsurance backstop to private insurers. A third option of social insurance
would provide modest public-sector cover with mandatory participation through
taxes or levies.
The Geneva Association says the
fourth option of post-event government aid, played out in many states during
Covid-19, is least preferable because it cuts out any risk mitigation.
Kai-Uwe Schanz, head of
research and foresight at The Geneva Association and the report’s author,
commented: “Of the four pandemic risk insurance schemes outlined, distributing
cash post-event – as many governments did for Covid-19 – is likely least
effective.”
The report looks at the
benefits of each scheme based on coverage, public exposure, risk mitigation,
cost efficiency, operational efficiency, macroeconomic benefits and matching
funds to needs. “There is no one-size-fits-all solution,” it says. But The
Geneva Association says “a solid economic case” can be made for all three
options of government-provided insurance, reinsurance and social insurance.
“Deciding whether participation
is mandatory or voluntary, as well as the role of insurers in pricing and
offering coverage, are critical considerations,” Mr Schanz said.
The report stresses that
insurers still have a role to play in implementing government-led pandemic
schemes, risk assessment and prevention services, as well as taking on limited
risk transfer.
“The industry could play an
important role in enhancing societal resilience to, and preparedness for,
future pandemic shocks. Insurers could contribute through awareness-building
among customers, supporting governments in assessing pandemic risk, designing
policies that incentivise risk mitigation… insurers should reach out to
governments and play an active part in designing and implementing future
pandemic risk solutions,” The Geneva Association states.
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