James Nash, International CEO at Guy Carpenter, noted in a recent interview that the ultimate backstop for all systemic risk is the taxpayer. But insurers have a role to play in covering these risks.
“The question is creating a risk framework around the national risk register for those either globally systemic risks, of which there are not many, and national risks. Not just creating a public-private partnership but also creating private market capacity around the scheme,” Nash said.
He continued: “For pandemic, once we create a product for the primary customer we will then be able to evolve a private market outside the standard product. If you think about war, which is a globally systemic risk, there is a war market outside the standard exclusion. So we will see something similar evolve for pandemics. For cyber, it has already happened where the systemic risk is excluded but it needs to be better defined.”
Priebe added: “Ultimately if there is a broader framework that is created around the world there will still be need way beyond the solutions provided by those facilities. And I think that is where the private market can continue to come in and play a role in providing excess coverage or wrap around coverage that may be broader than what is provided at a national level.”
A big source of private market capacity could be Lloyd’s, which has traditionally provided a home for hard to place risks.
“There is discussion that they are going to try to raise some capital to try to provide some bespoke solutions,” said Priebe.
He added: “You have multinational companies that may access the national facility but ultimately we will also need a global solution to cover exposures that are not fully addressed in those national schemes. Lloyd’s would be a phenomenal place to be the vehicle for that. John Neal and others have been talking about how that could be done.”