Insurance sector needs to play more active role in future pandemic solutions, says OECD secretary-general Angel Gurría
The Organisation for Economic Co-operation and Development (OECD), with support from Marsh McLennan is hosting a virtual event on Addressing the Protection Gap for Pandemic Risk.
Leaders including Angel Gurria, secretary-general, OECD; Flavio Piccolomini, president, Marsh International; John Neal, CEO, Lloyd’s; Julian Enoizi, CEO, Pool Re; US Congressman Emanuel Cleaver II; MEP Stéphanie Yon-Courtin and Dr. Ibrahima Socé Fall, assistant director-general for Emergency Response, World Health Organisation among others, will discuss the economic impact of COVID-19 and how public-private partnerships can address the protection gap for pandemic risk.
The event will shed light on the ways the COVID-19 pandemic has affected businesses across the world, and the important steps needed to better cover pandemic risk and build capacity to cover it in the future.
In his speech, Gurria made a call to the insurance industry to take an active part in public private solutions for future pandemics and other extreme risks.
“When it comes to future pandemics, [governments] can’t go it alone – the insurance sector also needs to be more active in being part of a solution,” he said. “We urgently need the insurance sector’s support to develop tools and expertise that will help us better manage future pandemic risk, while reducing demands on government finances.”
”Our discussions today will shine the spotlight on loss-sharing arrangements for future pandemics. These arrangements – public private partnerships – between governments and the insurance sector, which aim to deliver affordable insurance coverage for extreme risks, are nothing new. About half of OECD countries have some form of catastrophe risk insurance programme designed to share the burden of flood, earthquake or terrorism losses across the insurance sector, and often with government. Such programmes will be central to the management of future pandemics.”
No infectious disease outbreak in at least 100 years has caused such broad and devastating impacts as COVID-19 on the global economy. GDP across OECD countries was projected to decline by 3.4% in 2020, the equivalent of $6 trillion in lost output, according to the March 2021 OECD Economic Outlook.
The magnitude of potential losses and high levels of correlation make pandemic risk challenging to insure. As Gurria explained: ”Insurance is designed to protect the few who face losses in a given year with the premiums of the many who don’t – not to protect everyone from the same global peril at the same time.”
Levels of potential coverage for pandemic risk vary by country, but are limited for non-physical damage business interruption (BI) losses. This leads to the pandemic risk protection gap, or the difference between insured losses and economic losses.
“Marsh McLennan advocates for clients, provides risk advice and solutions and brings people together to tackle the greatest challenges of our time,” said Marsh’s Piccolomini. “That’s why we are working with the OECD and governments around the world to develop solutions that will assist in more rapid economic recovery and in building resilience to the impact of future pandemics.”