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EIOPA proposes measures to improve BI insurance

18th February 2021 - Author: Matt Sheehan

The European Insurance and Occupational Pensions Authority (EIOPA) has proposed a series of measures to improve the insurability of business interruption (BI) in light of pandemics.

eiopa-logoThe Authority explored options relating to prevention measures to reduce losses, capital markets risk transfer, and multi-peril solutions for systemic risk.

It also addressed the general challenges related to modelling and triggers for claims in the context of pandemics.

EIOPA emphasizes that a key element of shared resilience solutions is prevention, which can be promoted by re/insurers to help improve society’s capacity to reduce losses.

Improving clarity on the scope of coverage as well as integrating prevention measures in risk-based pricing of the insurance cover can create incentives for preventive behaviour, it suggested.

Prevention can also be supported by regulatory incentives, as well as by public-private initiatives for sharing data, while aligning public-private measures for risk prevention can help in reducing moral hazard and improve the insurability of the risk.

To improve society’s capacity for bearing business interruption risk beyond traditional insurance mechanisms, EIOPA argues that capital markets can be utilised an additional layer of risk transfer and diversification.

“Designing new and successful capital markets instruments for financing business interruption risk in a pandemic crisis pose challenges, and require legal certainty, predictability and swiftness in the payment of claims,” it said.

However, more progress on pandemic risk modelling and pricing is still needed, where possible incentivizing risk prevention through relevant claim triggers.

While pandemic-specific schemes are being discussed today, the option to introduce future-focused multi-peril pools should be considered going forward, EIOPA added.

This could support the development of common prevention measures, as well as address the opportunity cost of separate peril solutions.

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