With insurers largely unable to cover pandemics, many countries are considering public-private partnerships (PPP) to help businesses cope with future outbreaks. According to Swiss Re, there are at least 15 PPP pandemic solutions under discussion around the world, including proposals in the US, Canada and Australia.
Experts, however, warn that government-backed pandemic insurance solutions could be essential for protecting businesses against the next disease outbreak, but they could take years to create and may be of only limited benefit for large corporates.
Within Europe, the UK, Italy, Spain, France, Switzerland, Germany and Austria are considering pandemic PPP, while the EU recently established a working group to look into the feasibility of a pan-European pool.
Swiss Re head of EMEA public sector solutions Ivo Menzinger told Commercial Risk Europe that pandemic PPP solutions are doable, but they will likely take time to set up and will only offer limited forms of indemnification for large corporates.
He said, “There has never been a better moment for a pandemic PPP. I am convinced that pandemic PPPs can be achieved. They are the only viable solution to address systemic risks. However, it is too early to speculate on the likely success rate.”
The IMF has estimated the cumulative loss to global GDP during 2020 and 2021 from the pandemic crisis could be about $9tn. This is far in excess of the global insurance industry’s capitalisation.
Mr Menzinger said, “Given the size of exposure, pandemic pools may not be able to indemnify companies for loss of revenues caused by lockdowns. Rather than compensating companies for loss of revenue, pandemic PPP solutions would be more about survival support or providing resilience capital. The true gap (that can be insured) is a company’s fixed costs excluding wages. Variable costs tend to fall away in a lockdown and wages are in many countries taken care of by government support such as short-time working arrangements.”
Allianz head of regulatory affairs Tobias Buecheler said, “While the focus is on business interruption cover, in particular for SME companies, the discussion is in an early stage so the outcome for corporate insurance buyers has yet to be seen.”
AM Best senior director analytics Catherine Thomas said “Given the nature of pandemic risk, it is extremely difficult, if not impossible, for commercial insurers to offer widespread and broad insurance cover against pandemics. However, insurers are willing to work with governments on solutions.” M