Property and casualty (P&C) insurers would have to collect business interruption premiums for 150 years to make up for the projected global output losses related to COVID-19 in 2020.
That is according to a new report from the Geneva Association, which highlights how P&C insurers collect $1.6trn (£1.2trn) in annual premiums, just $30bn of which is from business interruption policies.
It warns that less than 1% of the estimated $4.5trn global pandemic-induced GDP loss for 2020 will be covered by business interruption insurance, and that nationwide lockdowns are “uninsurable for the private P&C insurance industry”.
The report's lead author, Kai-Uwe Schanz, said: “Pandemic-induced business losses defy basic, widely-accepted criteria for insurability. Unlike risks like natural catastrophes, they occur on a global scale and are not diversifiable.
“Governments and insurers urgently need to figure out the right partnership modalities to prepare for – and respond to – extreme risks like pandemics.”
In order to cover the total cost of COVID-19, the report claims that all P&C insurers worldwide would have to collect premiums across all lines of business for almost three years, with no money left for covering private homes and vehicles, injured workers and numerous liability exposures.
It concludes that the amount of capital needed to offer meaningful and secure insurance coverage would be “prohibitively high” given the lack of historical data for random viral, and non-random political risks associated with pandemics, and argues that this coverage should be excluded from commercial P&C policies.
Encouragingly, health and life risks for pandemics resembling COVID-19 pose no fundamental insurability challenges due to the “non-systemic and modellable” nature of these risks, according to the report.
“Systemic pandemic economic and business continuity risk cannot be treated in the same way as other catastrophic risks,” the report adds. “Government and society must accept this distinction when setting their expectations for the role of the insurance industry in addressing this issue in future.”
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Author: Chris Seekings