EIOPA is seeking views on an issues paper highlighting options for developing shared resilience solutions to address business interruption risk in the context of a pandemic. The current pandemic has shown that there is a significant protection gap for the non-damage business interruption insurance and that there exists a need to improve access to data and ensure proper modeling of non-damage business interruption risks associated with pandemics. The solutions to address this will require both public- and private-sector involvement and build on the key elements of proper risk assessment, measures for risk prevention and adaptation, appropriate product design, and risk transfer. The paper does not aim to set out a specific course of action, but highlights options that could be explored at the national and European levels. The comment period for this paper ends on September 25, 2020.
The paper recognizes that private insurance solutions alone will not be sufficient to protect society against the financial consequences of future pandemics. The options included in the paper are different insurance models and coverage—for example, whether cover should be mandatory and whether payouts should be based on a pre-agreed parameter or index. The options also include different ways the public and private sectors could work together by establishing an EU expert group for data sharing and risk modeling and creating a platform for public and private coordination on prevention measures. Different potential roles are considered for how EU can contribute toward solutions. The following four principles would underlie the development of a shared resilience solution for pandemic risks:
- A shared resilience solution would require the sharing of costs and responsibilities across the relevant parts of the private and public sector in a meaningful manner (“skin in the game”)
- An efficient shared resilience solution will require an element of central coordination across public and private entities
- Any solution involving public and private sector would be conditional on implementing efficient and effective prevention and adaptation measures
- A shared resilience solution can only insure against a portion of the economic costs
Looking ahead, and building on the lessons learned from the current COVID-19 pandemic, further analysis on the treatment of systemic risks may prove of great relevance. Based on the elements and principles of a shared resilience solution as set out in this paper, the opportunities for risk assessment, risk prevention, and risk transfer measures for systemic risks could be further explored, beyond the pandemics and non-damage business interruption insurance. Such analysis could address the question whether a multi-peril approach, covering losses caused by pandemic, cyber, climate change, and terrorism events could offer better diversification effects, ultimately improving the risk-bearing capacity and effectiveness of society. One possibility would be to establish a platform of private and public authorities. Any solution to these systemic risks should be inherently part of the sustainable economic recovery plans and reforms for green, digital, and social resilience. In developing this paper, EIOPA consulted the insurance and reinsurance industry as well as commercial insurance buyers and insurance brokers and distributors.
Keywords: Europe, EU, Insurance, COVID-19, Climate Change Risk, Systemic Risk, Pandemic Risk, Pandemic Insurance, Cyber Risk, Share Resilience Solutions, EIOPA
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