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How a Pandemic Exposed Gaps in the Global Business Protection and Insurance Models

One of the most FAQs during the COVID-19 pandemic is – “Will your insurance policy cover for losses arising from business lockdown, a healthcare crisis or hospitalization due to non-COVID factors?” Interesting, pandemic risks for insurance providers is just as big as it is for their millions of customers and partners.

The COVID-19 pandemic has affected all walks of life and business. One of the hardest hit business groups has to be the Insurance and Claims market, which is currently reeling under the intense stress of the increasing numbers of COVID-19 cases, and reported deaths due to the pandemic. The lack of proper healthcare facilities to a larger group of the population, lack of commercial vaccines for the virus, and general fear in the minds of people to visit doctors and clinics — all these combine together to expose regional gaps in healthcare protection and insurance parameters currently in place. In short, insurance companies are yet to accurately analyze the ‘insurability factor” arising from a global pandemic, such as the one that made its first wave of casualties as the “Wuhan virus.”

According to new research by The Geneva Association, it has been found that life and health risks for pandemics similar to COVID-19 are insurable: they are generally non-systemic and modellable. Property & casualty (P&C) insurers, on the other hand, would have to collect business interruption policy premiums for 150 years to make up for projected global output losses in 2020 related to the COVID-19. Insurers have an important role to play in protecting businesses and supporting economies, but it must be through participation in government-led initiatives. A Geneva Association report on ‘pandemic risk solutions’ is forthcoming later in 2020.

Amid widespread public discussion on how to address the deep financial implications of the COVID-19, The Geneva Association, in collaboration with the University of St. Gallen, has issued a new evidence-based study on the risk-taking capacities of insurers related to pandemics, An Investigation into the Insurability of Pandemic Risk.

Among the report’s main findings are that, encouragingly, health and life risks for a pandemic resembling COVID-19 pose no fundamental insurability challenges. However, P&C insurers have nowhere near the capacity needed to shoulder projected global output losses of more than USD 4 trillion for 2020. By comparison, they collect USD 1.6 trillion in annual premiums, with just USD 30 billion for business interruption policies.

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Jad Ariss, The Geneva Association’s Managing Director, said: “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. 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.”

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Kai-Uwe Schanz, The Geneva Association’s Head of Research & Foresight and the leading author of the report, said: “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. Unlike risks like natural catastrophes, they 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 Geneva Association’s research will support this endeavor.”

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