Issues Paper on resilience solutions for pandemics

European Insurance and Occupational Pensions Auhority (EIOPA)

The paper recognises that private insurance solutions alone will not be sufficient to protect society against the financial consequences of future pandemics. Solutions will require both public and private sector involvement, and build on the following four key elements:

  1. Proper risk assessment
  2. Risk prevention and adaptation measures
  3. Appropriate product design
  4. Risk transfer

Insurance relies on risk pooling. If, as in the current pandemic, the event affects an overwhelming proportion of society, and on a worldwide basis, insurance cover will not be supplied by private insurance undertakings at any price since the risk cannot be pooled or diversified geographically. One estimate is that current business interruption premiums in some markets would need to be collected for over 100 years to cover two months of COVID-19-related business interruption costs.

The lock-down measures, by which national or local authorities have restricted movement of (parts of the) population, have augmented the risk of business interruption. On the demand side, inability to insure has significant wider economic and social consequences such as businesses and individuals being unable to obtain loans and mortgages. This may well be an important second round effect of the Covid-19 crisis…

…This paper identifies issues and options for developing possible shared resilience solutions addressing business interruption risk in the context of a pandemic. Crucial elements in increasing society’s resilience will be proper risk assessment, risk prevention and balanced solutions for risk transfer across private and public parties. Read more