28 October 2020

CRE: Geneva report says insurers would need 150 years of premium to cover Covid-19 BI losses

A new report by The Geneva Association concludes that there is “nowhere near” enough capacity in the P&C insurance industry to cover business interruption (BI) losses from a pandemic such as Covid-19, and found that it would take 150 years for the industry to build up enough BI premium to cover the expected global loss.

The report by the global insurance association and University of St Gallen in Switzerland notes that the World Bank estimates global output losses of about $4.5trn in 2020 caused by Covid-19.

In comparison, the study points to the fact that P&C insurers collect £1.6trn in annual premiums, with just $30bn for BI policies that are generally intended to only cover physical damage.

On that basis, the report points out that it would take BI insurers 150 years to absorb the estimated $4.5trn global output loss inflicted by Covid-19 and its handling in 2020.

Jad Ariss, managing director of The Geneva Association, said the findings are “unambiguous”.

“The mismatch between economic losses and the risk-taking capacity of insurers that offer business interruption cover, as well as past demand for pandemic coverages, is staggering,” the report states.

“In order to cover the total cost, all property and casualty insurers worldwide would have to collect premiums across all lines of business for almost three years, with no money left for covering private homes and vehicles, injured workers and numerous liability exposures. Therefore, property and casualty insurers have typically applied strict exclusions on pandemic business continuity risk and never intended to cover it,” it adds.

The study will be followed by a second study that will consider potential solutions to the problem. But The Geneva Association makes clear that government involvement is needed.

“Governments need to involve themselves in closing the pandemic protection gap in P&C. And insurers still have a role to play. Our second pandemics report will explore possible solutions: innovative, public-private efforts that recognise the enormous magnitude and unique nature of pandemic risks,” said Mr Ariss.

The first report has better news when it comes to life and heath cover. It concludes that a pandemic such as Covid-19 poses no fundamental insurability challenges.

Kai-Uwe Schanz, The Geneva Association’s head of research and foresight, and the leading author of the report, said: “Insurers are providing meaningful support to people in the areas of health and life during Covid-19. But pandemic-induced business losses defy basic, widely accepted criteria for insurability. Unlike risks like natural catastrophes, they occur on a global scale and are not diversifiable. Governments and insurers urgently need to figure out the right partnership modalities to prepare for – and respond to – extreme risks like pandemics. The Geneva Association’s research will support this endeavour.”

CRE

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