A new study by The Geneva Association found that while the life & health insurance industry can absorb pandemic-related claims without issue, the same cannot be said of the P&C industry and the countless COVID-19 business interruption claims they handle.
According to the study “An Investigation into the Insurability of Pandemic Risk” – co-produced by The Geneva Association and the University of St. Gallen – health and life risks for a pandemic resembling COVID-19 “pose no fundamental insurability challenges.” But the report also noted that P&C insurers do not have the capacity to take on global output losses of over $4 trillion for 2020.
To put things into perspective, the study said that the P&C insurance industry collects $1.6 trillion in annual premiums, with only $30 billion for business interruption policies. The Geneva Association warns that P&C insurers would have to collect business interruption policy premiums for nearly 150 years to make up for the projected global output losses in 2020 related to the pandemic.
“When COVID-19 hit, insurers moved quickly to provide relief to their customers – for example, through reduced premiums – safeguard their employees, and engage with governments. They are promptly paying all legitimate claims where pandemic risk is covered,” said The Geneva Association managing director Jad Ariss. “But, as our research shows, the pandemic exposed a massive protection gap in the area of business continuity risk. We need to find sustainable solutions which harness the industry’s potential contributions while maintaining its solvency and viability.”
“Insurers are providing meaningful support to people in the areas of health and life during COVID-19. But pandemic-induced business losses defy basic, widely accepted criteria for insurability,” added The Geneva Association head of research & foresight Kai-Uwe Schanz, who was also the lead author of the report.
Schanz also explained that unlike risks such as natural catastrophes, pandemic-induced business losses occur on a global scale and are not diversifiable.
“Governments and insurers urgently need to figure out the right partnership modalities to prepare for – and respond to – extreme risks like pandemics,” the report’s lead author concluded.