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“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.