Conversations around insuring pandemics have to happen … and fast

Dividing the financial burden with key stakeholders could be the best option moving forward

Conversations around insuring pandemics have to happen … and fast


By Alicja Grzadkowska

The following is an editorial by Alicja Grzadkowska, senior news editor at Insurance Business. To reach out to Alicja, email her at [email protected].

The fallout from the coronavirus pandemic has posed a big question to the insurance industry over the past few months – that of what is the industry’s role in insuring pandemic risks such as this one moving forward?

The scale of losses arising from the pandemic is huge and the impact on the global economy is severe, with the Swiss Re Institute recently forecasting that its experts predict the resulting global recession will “be the deepest one in our lifetime and we won't be back to normal any time soon.”

According to some, should insurance companies be on the hook for business losses stemming from pandemic-related business interruption, the industry could face insolvency – clearly not a solution that would be beneficial for policyholders, brokers and agents, or insurers over the long-term.

Despite this stark reality, the US has seen a maelstrom of lawsuits against insurers from businesses demanding that business interruption losses be covered. In the UK, London-based specialist insurance law firm Edwin Coe LLP has partnered with loss assessor Harris Balcombe LLP in spearheading business interruption claims against Allianz UK under the insurer’s Resilience MD & BI (material damage and business interruption) policy wording. Meanwhile, Australian law expert and Clayton Utz partner Mark Waller believes that there may be hope for business interruption coverage applying after all, even when the policy contains a “quarantinable disease” exclusion.

Broadly speaking, every case and policy has their own grievances and unique language that would determine whether coverage would apply, and in some cases it might. In certain industries, like entertainment, insurance policies are covered up to a point for production shutdown, and most of those policies won’t have an exclusion for pandemics such as the current COVID-19 outbreak, lifting the financial load off of film and TV producers. However, even the entertainment industry will see long-term ramifications from insurance coverage going forward since some insurers have determined that new policies for film and TV productions will no longer cover losses related to the pandemic.

In light of the battles going on over coverage, the insurance industry and other stakeholders have proposed a few noteworthy solutions that address the pandemic risk head on and divide responsibility for pay-outs among insurers and governments. In the US, Rep. Carolyn Maloney (D-NY) has introduced a bill that would pave the way for an insurance program covering pandemic-related business losses.

The Pandemic Risk Insurance Act (PRIA) calls for the establishment of a Pandemic Risk Reinsurance Program, which would be funded by both public and private sources and would be used to cover business losses from pandemics or other public health emergencies. Under PRIA, businesses could purchase pandemic insurance and once a public health emergency occurs, the federal government as well as insurers would share financial responsibility for covering the claims up to US$750 billion.

In the meantime, three insurance industry trade bodies in the US recently unveiled a joint proposal for a federal pandemic insurance solution that would help businesses meet the financial challenges from future pandemics. This proposal comes after suggestions that a program modelled after the Terrorism Risk Insurance Program, created after the 9/11 terrorist attacks under the Terrorism Risk Insurance Act (TRIA), would be the right way to move forward. However, the bodies involved here suggest that this solution wouldn’t go far enough and that pandemics are generally uninsurable events.

“We need a sustainable solution that provides simplicity, certainty, and immediate relief to impacted businesses,” said David Sampson, American Property Casualty Insurance Association’s president and CEO.

While these proposals are still in their early stages and will likely evolve as the issue of who bears financial responsibility for this risk continues, it’s a good start to a conversation that needs to happen. Markets that lag in beginning these discussions and insurers that refuse to accept any role in paying out for coverage stemming from pandemic risks in the future or simply don’t consider how to move ahead – despite the fact that more outbreaks are sure to come and will leave entire industries unprotected – risk becoming obsolete. After all, in the UK, insurers expect to pay at least £1.7 billion in claims as a result of COVID-19 – hardly a sustainable solution moving forward if the industry wants to remain profitable for years (and health crises) to come.

That governments might need to get involved in the insuring of pandemic risk should at least be a discussion that’s on the table and while coverage-related fights play out, insurers should be looking ahead – and fast – about insurance options for this risk moving forward.

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