SCOR CEO Denis Kessler has cautioned against the introduction of a pandemic insurance scheme to mutualise operating losses for businesses, while acknowledging that the crisis could “change the course of history.”
Speaking in an interview with Le Point, Kessler questioned the advisability and feasibility of relying on systems that mutualise business losses.
He noted that the insurance market currently offers no protection against the economic consequences of a pandemic for several fundamental reasons, including the size of the risk and its non-diversifiable nature, as everyone is affected at the same time.
Additionally, there is the possibility of adverse selection as only the most vulnerable companies might buy insurance, as well as the great difficulty in measuring operating losses caused specifically by pandemic.
“Should we implement measures to dampen the impact of the crisis on companies? Definitely,” Kessler told Le Point. “Some already exist, such as furloughs and short-term hours. It goes without saying that we should safeguard financing arrangements, especially for SMEs. We should also help limit the number of bankruptcies to prevent the economic fabric of the country from being torn.”
“But I have trouble seeing why and how we could institute a principle of mandatory “national solidarity” between companies to protect them from the risk of a pandemic. Before embarking on such a project, an in-depth assessment is crucial.”
Kessler characterised the COVID-19 pandemic as a “dark page in world history” and argued that it will have an impact on every aspect of an individual’s behaviour going forward.
He further suggested that the crisis could lead to questions about the role of government, of medicine and of international organisations, and said that Europe in particular could find itself destabilised, with nationalism and protectionism re-emerging.
“This health crisis is also giving rise to many serious questions about democracy and freedom,” Kessler added. “Yes, this shock could change the course of history. But it is too early to say how much.”
It is clear that the direct and indirect costs of the pandemic will be extensive due to lower business activity and unemployment, among other factors.
The contraction in economic activity combined with massive central bank intervention and further bloating of public deficits could also foster a resurgence of inflationary pressures, as a consequence of injecting vast sums of money into the economy.
“More fundamentally, we will see changes in the behavior of all economic players, with serial effects on both the demand and supply sides of the equation,” Kessler explained.
“As individuals and consumers, all of us will change our attitudes faced with the pervasiveness of this new risk. In all likelihood, we will protect ourselves more, consume differently, travel less, etc. For business and industry, meanwhile, this pandemic shock will unquestionably lead to a reorganization of production chains and, consequently, of the international division of labor.”
He concluded: “The sum total of all these impacts – behavioral changes on the part of governments, individuals and companies – could result in changes to the global economic equilibrium.”