As COVID-19 continues to drive widespread uncertainty and extremely challenging societal and economic conditions, the only viable way to effectively address the crisis is through public-private sector collaboration, according to Veronica Scotti, Chairperson Public Sector Solutions, Swiss Re.
While varying degrees of lockdowns and social distancing measures remain in place across much of the world, governments are increasingly discussing COVID-19 exit strategies and importantly, exploring ways to build resilience to pandemics both now and in the future.
Against this backdrop, Reinsurance News spoke with Swiss Re’s Scotti, who chairs a team dedicated to partnerships with the public sector, around the importance of public-private partnerships (PPPs), and also the effectiveness of the World Bank’s Pandemic Emergency Financing Facility (PEF).
“Private public partnerships truly matter when they are answering questions which otherwise you can’t answer,” started Scotti. “So, for us, the predominant lens that we use is one of building societal resilience. We care for the world to be stronger, we care for, as an organisation, fairer distribution and more opportunities for everyone.”
No matter how good the intention to deliver a smooth economic and societal development, she continued, the reality is that shocks can and do still happen. That’s why, for Swiss Re, it’s very important to put effort in around building resilience and to then think about who needs to be mobilised in order to manage the response to a threat to reduce its impact when it strikes.
While some regions appear to have responded faster and better to the COVID-19 outbreak than others, the pandemic has revealed a very real and urgent need to build global resilience and preparedness. And according to Scotti, neither the world’s governments or re/insurers can do it alone.
“We understand the threat and that’s why I think a company like ours, and the industry overall, is very important, because we are risk experts and that is a key component in the design and delivery of the responses.
“The answers to the threat need to be as science informed, as accurate as possible. Interests be aligned. Roles clear. There is no perfection but we need to try and get this right, because if we don’t, the consequences are very dire.
“The bigger the threat, the bigger the cascading effects, the more people get affected. When you look at a pandemic, you’re looking at a phenomenon that’s really, really far-reaching. So, there’s no way a single party in society can solve it all.
“It is not only desirable, I would go as far as saying it is the only option that we have to tackle all of this systematically and responsibly,” said Scotti.
Adding, “I’m a strong believer that it’s the best option we have today, but it has to be in partnerships with government. Because, the industry can be part of the design and I would even go as far to say it can even carry some of that risk, but we will always do it with strict accumulation controls because we can’t afford insolvency, and risk needs to be assumed with absolute transparency.”
Clearly, it is going to take some time before the ultimate impact of the current crisis is fully understood for governments of all sizes.
Scotti explained to Reinsurance News that while governments are obviously looking at things they can do right now, importantly, there’s been a growing interest in exploring what can be done to understand the risks and ultimately mitigate the impacts in the future.
As has been reported recently, a number of governments are believed to be looking at risk pooling mechanisms and federal backstops to address pandemic risks, and Scotti noted that a pandemic risk sharing scheme, similar to natural catastrophe or manmade initiatives seen in some parts of the world, can be a viable option.
As the COVID-19 situation accelerated and intensified, eyes turned to the World Bank’s PEF and pandemic catastrophe bonds, which, provided parametric insurance protection against pandemics for developing countries, and which triggered a payout in April.
Discussing the PEF and its effectiveness, Scotti told Reinsurance News that personally, she deeply respects the ingenuity that went into PEF for a couple of reasons.
“Number one, there was no reference case, PEF is truly the blueprint to ex ante pandemic funding measures. Because they decided to go down a financial product route, it meant that they needed to create the transparency and the data necessary for mechanisms through which one could demonstrate the potential losses and align interests; to then be embedded in an insurance contract.
“The PEF is the tip of the iceberg, and the iceberg is all of the foundational work that went behind the vision of, we need to be better, we need to be faster, we need to provide support at the moment of need and not much later. And we want to tap a different source of funding up front, locking it in.
“For me, that’s why the PEF is unique, because it answered in completely novel ways challenging questions and addressed some of the issues of the practices of the past. But, it is not a substitution for humanitarian aid, you still continue to do both. However, what it’s trying to do is chip away at some of the problems of a pure ex post funding model and it also puts a spotlight on some of the things that we did not know, things that we could not model, which we had to work around when the PEF work started. Knowing what we do not have a good handle on is an incentive in itself to continue to find better answers.
“In my mind it has performed, but is it the answer to everything? Absolutely not. And, as for anything that you create to solve an issue that wasn’t solved up until that point. There’s always some elements of lesson learned that will go into feeding new innovation and education,” said Scotti.
Undoubtedly, the financial and economic impacts of COVID-19 will be significant, but while costly, it’s not the black swan event that some might have assumed.
Scotti expanded on this, and underlined the fact that a pandemic is not an unknown phenomenon.
“This is not a black swan and actually, this is a white swan because it is known and it is not so rare. As an industry, it was known and researched, as reported in the CRO Forum study from 2007and discussed at the WEF for many years, and we do of course hold and continue to improve our pandemic models,” she explained.
But perfecting mortality (pandemic) models is one piece of a much bigger mosaic if we want to tackle economic resilience. The size of the task at hand is truly huge and extremely uncertain. As highlighted by Scotti throughout the discussion, no one party can tackle this alone and by working together, the public and private sector have the capacity, ability and willingness to build the world’s resilience to pandemics both now, and in the future.