Bruce Carnegie-Brown, Chairman of insurance and re/insurance marketplace Lloyd’s of London, has voiced his support for a government initiative that would provide a backstop for pandemics, as well as other forms of systemic risks.
Speaking in an interview with the Telegraph, Carnegie-Brown explained how COVID-19 has shown that pandemic risk is “too big for the industry itself to insure.”
“The economics of insurance is collecting a premium from lots of people and paying the large claims of a few. The problem with a pandemic is it’s everywhere, all the time, so the model doesn’t really work,” he noted.
Lloyd’s is therefore in favour of a partnership with the government whereby it would effectively underwrite risk.
Such an initiative could be similar to the Pool Re model, which was set up to insure businesses against terror attacks.
But Carnegie-Brown says that the best approach would be to set up a scheme that addresses all systemic risks, rather than just reacting to each shock as it comes.
“Why limit this just to a pandemic? We should be thinking of something for all systemic risks,” he told the Telegraph.
“Before the pandemic happened I would have thought cyber risk is a much bigger systemic risk to the country, so if we put something in place for the pandemic and the next big risk is cyber, we’ll be in the wrong place.”
At present, estimates still predict that the re/insurance sector will incur overall losses of around $203 billion due to the COVID-19 pandemic, but Carnegie-Brown notes that these figures have been based on the idea that the virus would be on the decline after summer.
However, with lockdown measures being re-introduced across the UK and other parts of the world, re/insurance losses are likely to rise further as business come under additional strain.
And losses could be exacerbated by the outcome of the FCA’s BI test case, as well as developments in long-tail lines such as medical malpractice or D&O.