After 9/11, life changed forever for everyone. Some nation states realised that they needed a risk pool to cope with future mega-loss events sparked by terrorist activities.
These range from Pool Re in the UK through to the Australian Reinsurance Pool Corporation in Australia.
While 9/11 had a huge economic impact (estimates in the New York Times suggest the cost could have been $3.3tn or more), the economic cost associated with COVID-19 could be far higher. We won’t know until the pandemic has passed – and that is not likely to happen for some time to come.
The problem with COVID-19 compared to any other cataclysmic global event is that its impact presents a seemingly endless cascade of negative economic impacts – think of one domino falling on the next for as far as the eye can see.
The Economist newspaper summed it up quite neatly when it said that it might be possible to save the world economy - or save human lives - but it was unlikely that we could do both.
Most of us have chosen – rightly – to save lives over the economy but how the insurance sector is perceived at the end of it all is open to question. In so many sectors, such as travel and business interruption, it seems that pandemics are routinely excluded from standard cover.
This means that many insurers might be left as silent observers to a growing global calamity – playing no active part in spite of the fact that their entire raison d’être is to help build resilience for individuals, families, businesses and societies.
The worry is that the public will turn to insurers when the smoke has cleared and ask the simple question: Where were you when we needed you?
Lack of a convincing answer might mean that insurers take the place that bankers had assumed after the global financial crisis as the whipping boys for the public’s anger and displeasure.
For the future, it seems likely that governments will recognise that we have another systemic weakness to deal with. The first systemic weakness – lack of terrorism risk cover – was resolved by the establishment of the catalogue of national terrorism risk pools.
The second systemic weakness – lack of pandemic risk cover – could be resolved by the establishment of a series of national pandemic risk pools.
The problem of establishing such a pool would lie in the sheer size required. A successful terrorist attack might cripple a section of a city – but it would not cripple an entire country. And yet with COVID-19 we are looking at a pandemic that is crippling virtually everything everywhere – all at the same time.
It’s not like the current situation hasn’t been envisioned in the past. In 2013 The World Bank published a background paper called ‘Pandemic risk’ in which it concluded that there was, “Limited scope for risk pooling and ex-post mitigation,” in the event of a serious pandemic.
The bank concluded that, “Risk pooling among individuals or among countries is difficult because once a severe ‘flu pandemic is underway, all would quickly face similar risks, with worldwide economic disruptions within a few weeks.”
But the bank saw some cause for optimism. “Within communities health risks could be pooled ex post as the uninfected and the recovered care for the ill,” according to the report.
The bank acknowledged that, “Neither OIE (World Organisation for Animal Health) nor WHO and other UN agencies have the mandates or experience in financing large-scale long-term multisectoral investment programs such as those required for robust public veterinary and human health systems that employ One Health approaches.”
But in terms of building resilience for the future, the World Bank points towards the need for a global – rather than national – pandemic risk pool: “For instance, pooling funds for emergency disease control and compensation or establishing a contingent emergency lending facility for this purpose would likely be more efficient and equitable globally than individual country contingency funds.”
Time to start building.
Asia Insurance Review