Incentivising businesses to mitigate and manage risk should be an important part of any public-private insurance backstop for future pandemics, industry experts said during a panel at the National Association of Insurance Commissioners’ (NAIC) 2020 virtual fall national meeting.
The comments came as Zurich North America laid out its pandemic risk concept backed by the federal government that would cover 80% of a business’ operating expenses up to three months as a result of federal and state shutdown orders.

How to build resiliency and risk mitigation into any public-private pandemic risk insurance programme is an issue that needs to be addressed, panellists said during the NAIC meeting.

“Are there things we can do or is there some opportunity for us as an industry to help impact this and mitigate potential losses from these kinds of events going forward?” asked American Property Casualty Insurance Association vice president of personal lines Don Griffin.

The industry has an important risk-sharing role to play and can help drive better behaviours related to pandemic risk, said Chubb senior vice president and general counsel for global government and industry affairs John Fielding.

“Over the course of time we think the industry will develop risk management and risk mitigation knowledge and experience that can lead to better understanding of pandemic risk, risk mitigation, preparedness, and can lead policyholders to be better prepared,” he said.

“When an insurer offers a product it almost always requires the policyholder to take certain actions to mitigate the risk of the insured event happening. I don’t think it will be any different here,” said Mr Jake Friedman who is the legislative assistant to Rep. Carolyn B. Maloney (D-New York), who introduced the ‘Pandemic Risk Insurance Act’ in May.

Insurers that offer pandemic risk insurance will “almost certainly” require policyholders to take certain actions to mitigate the risk of their business being negatively impacted by a pandemic or at least to minimise policyholder’s losses in the event of a pandemic, Mr Friedman said.

There’s a learning curve with pandemics, Mr Griffin said. “As we learned how to deal with terrorism events after 9/11 over the years, we’ve also figured out ways to solve problems of flooding,” he said.

“We’re going to work with the government to figure out what kinds of things can be done to minimise potential damage earlier as well as to make sure that when we offer a product it has an impact,” he said.

Risk mitigation is already underway, said Arnold & Porter Kaye Scholer senior counsel Charles Landgraf who discussed the Washington-based Business Continuity Coalition’s push to establish a public-private backstop for future pandemic risks during the NAIC panel.

“Businesses are rapidly changing the way they do business in response to COVID-19. We look forward to working with the insurance industry continuing to identify mitigation techniques and incentives,” Mr Landgraf said.

Zurich’s pandemic proposal would see businesses voluntarily select coverage through existing brokers or agents, receive premium subsidies based on their size, and use payouts to cover their critical financial obligations such as payroll and employee benefits in a future pandemic.

The key difference in Zurich’s pandemic concept is that it allows insurers to retain control over the risk that they assume, said Zurich North America home office property unit head Pete Caminiti.

Insurers would be required to offer pandemic coverage to all policyholders but would then cede the risk to the federal government via three reinsurance pools that provide 100%, 95% and 90% coverage, he said.

“The pooling mechanism borrowed from the Federal Crop Insurance Programme sets up different reinsurance programs with the federal government and allows each carrier to decide how much risk they want to retain by choosing which pool they want to cede business into,” Mr Caminiti told Business Insurance in an interview.

Based on a simulated model of its concept, Zurich found a $3.3tn economic event as a result of a pandemic became a $1.6tn insured event, only $15bn of which would be borne by the insurance industry, Mr Caminiti said.

Business Insurance is a sister publication of Asia Insurance Review. More stories from Business Insurance here.

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