In a recent interview with The Insurer, Guy Carpenter executives David Priebe, Chairman, and James Nash, International CEO, discuss the prospect of nation states coming together to provide a wider solution for cross-border threats like pandemics and cyber.
Some countries are contemplating developing public-private partnerships to insure future pandemic events, with parametric structures emerging as a potential mechanism to do so.
France, the United Sates and the United Kingdom are all contemplating the potential merits of parametric triggers as a swift mechanism to trigger payments to small- and medium-sized enterprises (SME) that are affected by the next pandemic outbreak.
A recent report from Guy Carpenter-affiliate Marsh noted that a range of existing public-private risk-pooling models can be used to create a solution in the United States. But the broking firm stressed that the U.S. government is the only entity with the financial resources to help close the pandemic coverage gap.
Marsh CEO John Doyle at the end of March wrote to leaders in Congress to propose a pandemic risk insurance program that would be structured as a risk-sharing model between policyholders, insurers and the federal government.
This was followed by the introduction of the Pandemic Risk Insurance Act of 2020 (PRIA) by Representative Carolyn Maloney at the end of May. It is based on the U.S. terrorism insurance backstop, and establishes a system of shared public and private compensation for business interruption losses from pandemics.
But Priebe stressed that Marsh & McLennan is open to other solutions other than PRIA.
“Our number one goal from the outset is there needs to be a forward solution for pandemic risk for businesses to create future resiliency for the United States and global economy,” he explained. “We are not wedded to any one approach, other than we need an approach that meets the needs of our customers.”
Insurance heavyweight Chubb on July 8 released its own public-private partnership proposal for protecting against future pandemics in the United States. This means three proposals have now been floated in the United States. In addition to PRIA, three insurance associations have proposed a program with a parametric trigger in which insurers play a purely administrative role.
Chubb’s Pandemic Business Interruption Program is a two-part public-private partnership with a parametric trigger for small businesses and an indemnity trigger for large businesses.
The small business program would see the industry initially provide USD 15 billion of overall coverage rising to USD 30 billion over time with a government backstop taking total coverage up to USD 750 billion.
The Financial Times quoted Marsh CEO Doyle as describing the Chubb plan as “a significant step forward in creating a public-private solution”, suggesting the broking giant is open to more than one solution to the problem.
When asked how big a role intermediaries can play in pushing the debate forward, Priebe replied: “We view it as a responsibility to take a leading role in advancing these discussions. That is why John Doyle initially called for a forward looking pandemic solution as the customers of Marsh and Marsh & McLennan Agency were asking for a solution. We thought it was important to get the dialogue moving and stay part of that dialogue, not just in the United States, but around the world.”
Priebe comments that COVID-19 has led to the realization that the systemic risk from pandemics needs to be addressed. He identifies systemic cyber outage and nuclear, biological, chemical and radiological (NBCR) terrorism as two other systemic risks.
“Those are the three black swans we envision right now and potentially an ultimate government-owned backstop can address those difficult to insure, if not uninsurable, risks with everything else insured within the contours of the private market.”