At the high end of COVID-19 loss projections, (re)insurance will cover only a small fraction of the huge economic cost, which is expected to run into the trillions of dollars, according to a recent Reactions article by Peter Hearn, President and CEO of Guy Carpenter.
COVID-19 should therefore serve as a warning to both our industry and governments about the changing nature of risk. The increasingly complex risk landscape, along with the interconnected global economy, is challenging long held assumptions around (un)correlated exposures and it’s raising questions about the insurability of certain systemic perils.
Capital and pricing adequacy are being (and will continue to be) reassessed, as risk carriers and investors adjust their underwriting strategies and appetites to adapt to this new operating environment. This, however, is not a journey (re)insurers can embark on alone: the sheer scale and indefinite time horizons associated with COVID-19 and other systemic risks are beyond the financial capabilities of the (re)insurance sector. Although insurers and reinsurers assessed a range of pandemic scenarios pre-COVID, its unforeseen consequences have prompted most to recalibrate risk models by considering new loss scenarios and introducing exclusionary language.
Guy Carpenter therefore believes that any viable, long-term solution for perils that threaten societal and economic stability require some form of government participation.