Lloyd’s, the world’s insurance and reinsurance market, says there are a number of ways the insurance industry could fast-track global economic and societal recovery from the far-reaching impacts of Covid-19.
These include three open source frameworks, that help build future resilience through innovative partnerships and products together with a Centre of Excellence to better understand, model and provide insurance for systemic catastrophic events.
Following interviews with executives and experts across key global industries, the proposals seek to address short, medium and long-term challenges customers face as they begin to recover and reopen. The proposals include solutions for the reopening of businesses against the threat of further waves of Covid-19, building greater resilience across global supply chains as well as the digital economy, and preparation and protection for the next systemic catastrophic event.
As the Covid-19 pandemic continues to devastate economies and communities, with impacts requiring resources that can only be accessed by governments, there remains an urgent need to protect society as it recovers and prepares for an uncertain future, Lloyd’s said.
ReStart, a potential non-damage business interruption solution (loss of revenue without a physical damage trigger) for future waves of Covid-19 being developed by the Lloyd’s market, specifically focuses on supporting SMEs.
The solution is focused on giving certainty of non-damage business interruption coverage initially to UK SMEs by pooling limited capacity across a number of Lloyd’s market participants. The product would support SMEs reopening, offering a range of limits that ensure it is affordable for customers, without requiring any government support.
Recover Re sets out a proposed “after the event” insurance product framework, that could provide immediate relief and cover for non-damage business interruption over the long-term, including the current Covid-19 pandemic. If implemented, this could be an efficient way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity. This framework could be implemented in any country where the government has the resources and industry commitment to support it.
Black Swan Re is a reinsurance framework for government and industry partnership that could better protect customers from the devastating and long-term impacts of systemic catastrophic events – from another pandemic, or global supply chain disruption, to
the interruption of critical infrastructure or utilities. The framework would provide reinsurance for commercial non-damage business interruption cover for black swan events through industry pooled capital, backed by a government guarantee to pay out if ever the pool had insufficient funds.
Alongside developing and sharing these frameworks, Lloyd’s is developing a Centre of Excellence to build resource and capability to better understand, model and create products that better protect customers against systemic risks, including pandemics. This will include new technical capabilities and services to support insurers, and academic partnerships to develop a better understanding of systemic risks and customers' emerging needs from the insurance industry.
To kickstart the creation of the Centre of Excellence, Lloyd’s Innovation Lab is already working with insurtechs that can provide some of these capabilities, including exploring the application of an epidemic tracker to better evaluate and underwrite pandemic risk, as well as solutions to help close the insurance gap for systemic risks. In parallel, Lloyd’s Product Innovation Facility is focusing on innovating products to respond to an accelerated shift towards intangible-driven business models in response to Covid-19.
“The purpose of insurance is to help businesses and communities manage the risks they face, enable them to recover quickly from disasters by paying claims, and provide the security that allows them to innovate, develop and drive economic growth,” Lloyd’s chairman Bruce Carnegie-Brown said.
“Covid-19 has demonstrated that there is much more we can do to support our customers by providing protection for the changing risks they face. Some of these risks are of a scale that require partnership with governments globally, and this report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world.”
Lloyd’s confirmed in May that the market will pay out in the range of US$3 billion to US$4.3 billion to its global customers as a result of the far-reaching impacts of Covid-19. In addition to managing wide-ranging pay outs across sectors and geographies, the experts, entrepreneurs and innovators drawn together by the Lloyd’s market have already started creating new policies to support the immediate health response as well as the longer-term exit strategy. This includes the search for diagnostics, treatments and vaccinations, where one Lloyd’s syndicate is insuring more than 100 individual clinical trials taking place around the world investigating all stages of Covid-19. Lloyd’s is also actively working on an insurance solution to support the safe transportation of a Covid-19 vaccine (when developed) to emerging markets.
