Recently, IB reported on Evan Greenberg, CEO of insurance giant Chubb, appearing before a US Senate Committee where he argued for a “financial backstop” to protect against future COVID style pandemics. The “backstop”, he said, would be a public-private partnership between the government and the insurance industry.
So, could this partnership work in Australia?
IB put this question to three of the main representatives of the Australian insurance industry: the Insurance Council of Australia (ICA), the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the National Insurance Brokers Association (NIBA).
ANZIIF and NIBA preferred not to comment, but the ICA provided a statement in response to the questions.
The statement went like this:
“The ICA recently commissioned an independent study to look at options to mitigate the economic effects of future pandemics and it concluded that insurance coverage for pandemics is not possible without government involvement.”
That seems to partly side with Greenberg’s proposition. The ICA statement went on to say that the
the Organisation for Economic Co-operation and Development (OECD), is also considering global solutions for pandemic funding and risk reduction.
The ICA said the findings of its independent study were largely consistent with the OECD’s view that acknowledged the need for a global pandemic insurance solution and that the private insurance industry is not in a position to do it alone.
“It highlighted that planning for future pandemics will require governments, the insurance industry and the private sector to work together on business interruption solutions,” the statement read.
Dr Ian Enright (pictured) is founding chairman of the Australian College of Insurance Studies (ACIS). He said, until four important issues have answers, “the private sector will be wary of the long-term commitment necessary for such a public-private partnership to be established and be successful.”
“Firstly, what catastrophic risks should we consider? How do we scope what catastrophes should be covered? It would be another kind of catastrophe to limit the arrangements to pandemic risk,” said Enright.
“Secondly, the development and resourcing of relevant physical and service infrastructure, including public health systems, public health education, supply chain integrity and commercial logistics for cross state and international border movement of people and goods,” he said.
“Thirdly, community and economic resilience planning: how do we stay healthy, work, supply goods and services, educate, play, exercise and socialise in a crisis? Fourthly, the development of consensus principles about the role of government and the private sector in the necessary work.”
Enright also noted that Greenberg’s plan excludes climate catastrophic risk.
“The COVID pandemic is certainly setting challenges for our community and economies that will become more frequent,” he said. “But Australia has also seen shuddering social and economic impacts from the GFC, fire and flood in recent years. There are likely to be more pandemics and climate change impacts on our infrastructure, community and economy. The real question is: how do we resource protection or mitigation for these risks?”
Enright said there is a continuing tension between insurers and government with insurers arguing that the government must invest more in infrastructure to provide first line protection for the community and the economy. Otherwise, he said, insurance premiums must increase and could do so to a point where there is no affordable insurance coverage.
“The infrastructure in relation to a pandemic is not where it needs to be,” said Enright.
“Government support as a guarantor or re/insurer of last resort is obviously reduced by government intervention for the development and investment in infrastructure - the maxim adapted is apposite here: prevention is better than insurance,” he said.
