Insurers Are Looking For Ways to Make Pandemics Insurable
ITI190 - Insurance Top Info 190 | Insurers are looking for ways to make pandemics insurable
When much of the global economy stagnated last year, insurers, with losses estimated at over $ 100 billion worldwide, turned directly to their red pens to cover the pandemic with all the news. commercial fonts.
Denis Kessler, CEO of French reinsurer SCOR, summed it up by saying at a recent conference that the risk of a pandemic is comparable to war.
"We rule out war - it is not insurable," he said.
But as industries encompassing travel and hospitality, construction and manufacturing return to a new standard, the sheer demand is pushing insurers to figure out how to get pandemic risks back into policies without making them excessively onerous.
The film and television industry is one example.
US company SpottedRisk has designed a model based on years of data on the political and economic environment of filming locations in 150 countries, as well as data on the one-year shutdown of COVID-19, to propose a mechanism pricing to reduce the risk of production downtime. because of the pandemic.
“Over 20 industry insiders told me it was going to be impossible, but we found a way,” said Janet Comenos, CEO of SpottedRisk.
The company, which declined to name its clients, said its insurance policy has enabled 19 independent film and television productions with budgets between $ 1 million and $ 85 million to shoot in locations around the world.
The SpottedRisk policy, which typically costs between $ 50,000 and $ 80,000 for $ 1 million in coverage, helps fill a void in Hollywood where independent filmmakers have complained about the lack of coverage, and unlike Britain, where a program government aims to allow film and television production to continue has no involvement of insurers.
While the risks of the film industry are relatively limited for a limited period of time, industries such as airlines have much greater potential losses and can prove more difficult to insure, with many insurers arguing that coverage full can only come back if the government offers the same. kind of guarantee they offer. floods or terrorist attacks in some countries.
Redecoration
Insurers don't want to be taken by surprise again because they haven't predicted the extent to which economies around the world will lock themselves in to suppress the virus and keep healthcare systems running.
“Our models capture infections and deaths,” said Robert Muir-Wood, research director at risk modeling company RMS.
"He did not understand the subtlety of the governments' response, prompted by the number of empty intensive care beds (ICUs)." RMS now takes this into account.
The government's responses meant that, surprisingly, claims for trade credit, event cancellation and business interruption were higher than for life insurance according to industry sources, as many of those who died due to age may not have purchased life insurance.
“A year ago, on the non-life side, we had virtually no pandemic modeling skills,” said Iwan Stalder, head of accumulation management at insurer Zurich, who has since modeled broader pandemic scenarios.
Few have resumed offering non-life insurance coverage in the event of a pandemic, except when events were planned well in advance and insurance purchased years ago, such as the Olympics.
Canceling the Olympics would result in a "staggering" loss of $ 2 billion to $ 3 billion, according to insurance sources.
Instead, insurers have turned to governments for help.
Britain, the European Union and the United States are all considering agreements in which coverage for commercial insurers is backed up by government reinsurance schemes. These programs may be less expensive than corporate bailouts, but development has been slow as governments grapple with current challenges.
Creative solutions
Some say commercial insurers can do more.
“The private market has the capacity to create solutions,” said Rod Fox, CEO of brokerage firm TigerRisk Partners, which has helped SpottedRisk find insurers for its film and television policies.
Another way to cover COVID-19 could be to repackage the risk of a pandemic in the form of debt through so-called insurance-related securities (ILS), by sharing that risk with investors such than pension funds.
“It became clear to us at the onset of the pandemic that models fit before COVID were no longer fit,” said Scott Mitchell, ILS Lifetime portfolio manager at Fund Manager Schroders.
"The specifics of COVID are just not captured ... the characteristics of the disease and the response of governments, and the political factors involved."
Schroders has developed new types of ILS life that take into account factors beyond death rates.
Insurers are also working on so-called parametric policies. These automatically pay a certain amount when a certain trigger is reached, such as a government shutdown.
"If you put a line around that, you can estimate the risk," said Greg Medcraft, director of finance and business affairs at the Organization for Economic Co-operation and Development.
“For events with a low probability and high impact, such as climate change, cybercrime, pandemics, you need a new way of thinking.
While pandemics as a whole are difficult to cover, some insurers have managed to eliminate small parts of the risk, for example by purchasing short-term travel insurance or additional health insurance for patients with the coronavirus after leaving the hospital.
But policyholders may have to accept more charges in the future.
Companies will likely need to show insurers that they are minimizing their risks, for example by requiring a negative COVID-19 test for spectators at live events, said Paula Jarzabkowski, a professor of strategic management at City University of London.
And to enable insurers to bring in enough premiums to cover the risk of a pandemic, business interruption insurance may need to be mandatory, such as auto insurance, she added.
“This ensures that anyone exposed to a potential risk takes some responsibility for them.
Insurers are looking for ways to make pandemics insurable by ITI190 - Insurance Top Info 190.