The Federation of European Risk Management Associations (FERMA) has underlined the importance of public – private partnerships in addressing global pandemic risks.
In a recent letter, FERMA has called on the European Commission’s coordinating response team to take steps to mitigate the impact of future pandemics in light of the ongoing COVID-19 outbreak.
The rapid spread of the virus across the world and subsequent economic fallout has created an unprecedented and extremely challenging situation.
The systemic nature of pandemic risk means that the private re/insurance industry lacks the capital to be able to provide adequate risk transfer for the exposure. Furthermore, says FERMA, insurance actually covers a very small slice of the potential losses facing businesses as a result of pandemic-related risks, and when you consider the introduction of more exclusions and tighter conditions, the coverage gap is clear to see.
“We do not expect this change,” says FERMA. “It will probably be necessary to create public-private partnerships for pandemic risks on a national basis, but the EU should help Member States.” Such assistance could include modelling expertise, rate setting, and start-up costs, explains FERMA.
For large, complex risks where potential losses are vast, such as flood and terrorism, public-private partnerships do already exist in parts of Europe. FERMA highlights Pool Re, the UK government-backed terrorism reinsurer and the state-backed Caisse Centrale de Reassurance in France.
While pandemics and the related recessionary risks do differ from natural catastrophe events or terror events, FERMA says that these models do provide possible new initiatives, “as they have established process to provide funds to those affected by such risks.”
Alongside government and industry funding initiatives, FERMA also urges the European Commission to take into account lessons learned from COVID-19 and for this information to be shared across Member States. Additionally, the use of risk management tools at organisational, national and European level is something that could help reduce the impact of future pandemics, says FERMA.
“Covid-19 is having a devastating impact on businesses across Europe. Since the outbreak of this pandemic, the risk managers of European corporates have been doing whatever possible to support their companies and their national governments to reduce the impact of Covid-19 and protect our societies. Risk managers are already involved in planning for successful recovery.
“It is essential to learn from the experience of Covid-19 to use risk management to mitigate the impact of future pandemics at organisation, national and European level. We will collect the feedback and conclusions of this crisis throughout our membership and report our findings to the Commission.”
