Accelerate Recovery and Build Resilience Now Through Public-Private Partnership
Pandemic Risk Protection
While the COVID-19 pandemic is first and foremost a human tragedy, its economic impact is also deeply concerning. The stakes for businesses, nonprofit organizations, and workers are too high to defer action, and a pandemic risk insurance program will be an essential element in the response to COVID-19 and future pandemics.
Marsh’s Pandemic Risk Protection: Accelerate Recovery and Build Resilience Now Through Public-Private Partnership — with contributions from Metabiota — outlines the case for a public-private pandemic risk solution, which can accelerate the US economy’s recovery and provide protection against future risks.
The Risks of Outbreaks, Epidemics, and Pandemics
Numerous pandemics and epidemics — causing trillions of dollars in economic losses — have occurred in the last century. Today, given the greater ability for a pandemic to spread, the potential economic disruption from a health crisis may be far greater, as evidenced by COVID-19. A severe epidemic or pandemic can cause lasting damage across organizations. and industries. Key risks include:
- Loss of workforce to death and illness, employee absenteeism, and lower productivity.
- Disruptions to supply chain and other operations, reduced or changed production or service delivery, and reduced customer demand.
- Reputational damage.
COVID-19’s Unprecedented Nature
The International Monetary Fund projects that the global economy will contract by 3% in 2020. COVID-19 has affected economies in three particular ways:
- It arose suddenly and spread quickly.
- The ensuing economic downturn resulted from concerted actions by governments aimed at slowing its spread.
- The interconnectivity and interdependence of global supply chains has exacerbated the effects of risk mitigation measures and continued uncertainty.
Using Data to Make Pandemics Insurable
Advances in epidemic risk analytics, including modeling and monitoring tools, can help insurers and businesses understand their risks and optimize preparedness and response strategies. They can also better enable epidemic risk measurement, mitigation, and management — including via insurance.
Why We Need a Public-Private Partnership
COVID-19 has demonstrated the potentially significant limitations around the extent to which property and liability insurance can respond to pandemic-related losses. While some specialty polices may cover pandemic claims, the vast majority do not explicitly do so. Moreover, many insurers are expected to broadly exclude pandemic risk going forward, while existing pandemic coverage options for businesses are limited. Joint action from the public and private sectors can facilitate economic recovery now and for future pandemics.
What Could Be Included in a Government-Backed Solution
A public-private partnership to establish a federally backed pandemic reinsurance program can offer benefits for insurance buyers similar to those created via the Terrorism Risk Insurance Act (TRIA) of 2002. TRIA and other existing risk pools around the world can offer useful lessons in developing a pandemic backstop.
A pandemic insurance facility is especially critical as private insurers, on their own, do not have the financial resources to fully underwrite the unprecedented losses related to the COVID-19 pandemic, which may continue to mount in the months and years ahead.
Working Together to Bend the Risk Curve
A government-backed pandemic risk insurance program can be part of the means to manage infectious disease risks, providing valuable peace of mind to businesses and organizations. All stakeholders must work together to improve national and organizational resilience, bending the risk curve so that pandemic events can be better anticipated and contained.
Among other actions:
- Insurers can help businesses better understand their risks, obtain insurance coverage to meet their needs, and enact practices to prevent pandemic-related losses.
- Corporate boards, senior management, and risk management teams can evolve how they view, measure, and act on pandemic-related risk.
- Federal, state, and local governments — in conjunction with national and global health organizations — can focus on preparedness, mitigation, and insurance to build resilience and readiness.
A Call to Action
The insurance industry has a role to play in developing new solutions to outbreaks, epidemics, and pandemics that incorporate lessons we are learning today, but cannot go it alone. Ultimately, a public-private pandemic risk solution is the best option for enabling a smooth and quick economic recovery and protection from future events.