COVID-19 has thrown protection gaps into the spotlight once again. In this instance, the low availability and low take-up of non-damage business interruption insurance has highlighted why we need to be able to protect people and businesses against extreme and unexpected events.
Looking at the wider context, COVID-19 has demonstrated the need to strengthen society’s resilience to severe shocks as a whole, whether these are health-related, such as this pandemic, stem from climate-related natural catastrophes or large-scale sophisticated cyber attacks.
The wide-ranging nature of pandemics means traditional insurance risk transfer mechanisms are not always appropriate, making them too great a burden to be shouldered by insurance companies alone. Instead, solutions involving both the public and private sector are needed. In short, we need to develop shared resilience solutions.
At EIOPA, we recently set out different approaches to shared resilience in a staff paper, following discussions with representatives from the insurance industry, as well as commercial insurance buyers.
We have found that an effective shared resilience solution will need to encompass proper risk assessments, investment in prevention measures, appropriate product design, and residual risk transfer.
There is however no silver bullet. Our paper therefore outlines a number of possible options addressing how to assess and manage risk, improve coverage and share risk. Proposals put forward in the paper range from establishing an EU-wide expert group for data sharing and risk modelling to considering whether cover should be mandatory and pay-outs should be based on a pre-agreed parameter or index.
At its heart, a shared resilience solution requires joint cooperation. While public and private actors are the most obvious partners, there is also a role for the European Union in mitigating and sharing some of the risk. This type of involvement could range from encouraging or promoting risk prevention, and incentivising and coordinating national measures, to providing financial support for recovery.
It is clear that the threats we face today do not stop at borders. They are indiscriminate in their reach and they are too great to be tackled individually by people, single companies or even individual Member States.
While insurance companies cannot be expected to cover pandemic risks in their entirety, they should have skin in the game. Insurance companies play an important role in Europe’s financial services industry and economy and the strength of Europe’s economy is underpinned by our ability to insure against the costs of future pandemics.
It is in everyone’s interest to have a strong economy and a resilient society. To achieve this, we need solidarity and shared responsibility across all sectors of society: governments, public institutions, industry and civil society. Working together, with a common purpose, we can foster shared resilience.
It is early days for a European shared resilience solution, but our experience with COVID-19 has shown us that now is the time to take the first steps.
And while there continues to be much uncertainty about how COVID-19 will evolve, we can be sure of one thing: For a resilient post-pandemic world, insurance must be part of the solution, not part of the problem.
