Insurers would need to collect business interruption insurance premiums for 150 years to absorb losses caused by the COVID-19 pandemic, according to insurance experts at the global insurance research group, The Geneva Association and researchers at the University of St. Gallen.
The new report on the insurability of pandemic risk offers a quantitative assessment of the protection gap—the share of uninsured losses in total economic losses—in business continuity that the pandemic exposed. Key findings include:
- Pandemic-related business losses are not privately insurable. "The property & casualty insurance industry, which collects USD 1.6 trillion in premiums per year for all policies – and a mere USD 30 billion for business interruption risk – is not the right vehicle for shouldering the projected global loss in GDP for 2020 of USD 4.5 trillion."
- Forcing insurers to underwrite all of the economic losses associated with the pandemic threatens the entire sector's solvency. "The mismatch between the insurance sector’s current levels of capital, on the one hand, and the probability and exposure levels of pandemic risk, on the other, would impose a material solvency risk on the industry, as well as create a potential financial stability threat."
- Governments have a responsibility to involve themselves in closing the protection gap. "Systemic pandemic economic and business continuity risk cannot be treated in the same way as other (catastrophic) risks. Government and society must accept this distinction when setting their expectations for the role of the insurance industry in addressing this issue in future."
As Walter R. Stahel, expert in sustainable policy and former Head of Risk Management Research at The Geneva Association, wrote nearly two decades ago, "risks that can be insured need not be 'legislated'; uninsurable risks, however, have to be dealt with by nation states." Governments and insurers must think and agree upon feasible solutions to better protect society from extreme risks, the report concludes.
Read the full report here.
For more information and resources, visit fairinsure.org.