|
|
Following the work done by the European Insurance and Occupational Pensions Authority (EIOPA), and calls from the industry, the Commission is exploring with all the parties options for sharing the costs and responsibilities to respond to the impact of pandemics.
But the discussions are in a preliminary phase, as the Commission wants to see how the health and economic crisis evolves before deciding on possible actions, a Commission spokesperson told EURACTIV on Thursday (29 April).
Finance ministers, EU institutions, and financial watchdogs are concerned about the scenario that could emerge once member states’ emergency support for companies ends.
“The threat of a wave of insolvencies looms large, unless member states manage a smooth transition from liquidity support towards more targeted solvency support and successful corporate debt restructuring for viable firms,” the European Systemic Risk Board said on Wednesday (28 April).
The board warned that the support measures in this crisis may have just postponed corporate insolvencies, and if the transition is mismanaged, we could face a new recession.
“The current low rate of insolvencies would then be similar to the sea retreating before a tsunami,” the ESRB said in its report.
EU finance ministers (ECOFIN) are already discussing how to help viable companies with their debt burden and better deal with insolvencies.
In a parallel effort, the insurance sector is exploring how to improve the protection against the potential losses caused by the pandemic and the contention measures.
Last July, EIOPA put forward options for “shared resilience solutions” involving not only insurance companies but also the public sector.
“While it is clear is that insurance cannot cover the full costs of pandemics – insurers and reinsurers should be part of the solution and not part of the problem,” said Gabriel Bernardino, Chairman of EIOPA, said at that time.
The issue lies in the scope of the current insurance coverage and calls from the industry to share the burden in the case of pandemics.
According to industry estimates, less than 1% of the estimated $4.5 trillion global pandemic-induced GDP loss for 2020 will be covered by business interruption insurance.
In the limited cases where pandemic coverage for business interruption was offered (more concretely non-damage business interruption, when there is no physical damage), insurers are considering excluding in the future pandemic-related protection, given the impact.
One of these companies is Munich Re, after experiencing a €1.5bn loss in the first half of 2020 related to the cancellation or postponement of major events because of the virus.
EIOPA kept working on this direction by proposing in February measures to improve the insurability of business interruption risk.
“The challenges posed by the pandemic crisis require the sharing of costs and responsibilities across the relevant parts of the private and public sector in a meaningful manner, as well as some central coordination across public and private entities,” said its staff paper released in February.
The paper covered various aspects, such as prevention measures to reduce losses, and challenges related to modelling and triggers for claims in the context of pandemics.
“EIOPA gathered views from all interested stakeholders to this paper until end-March 2021 and is now analysing this feedback,” a spokesperson of the institution told EURACTIV.
The regulator, the spokesperson added, is in contact with the Commission to assess the next steps.
But these discussions are still in a preliminary stage.
A Commission spokesperson told EURACTIV on Thursday that “we will need more time to learn from the ongoing pandemic and to conduct further analysis on the feasibility of possible actions.”
The Commission is in contact not only with EIOPA but also with the industry. From the insurance sector, some proposals are more ambitious, including the idea of creating an international pandemic fund to cover the losses caused by the virus, and supported by the industry, member states and EU institutions.
