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Insurers puzzle over how to make pandemics insurable again



(Reuters) – When a large part of the global economy was locked down last year, insurers, who estimated losses of more than $ 100 billion globally, reached out to their red pens to get pandemic protection from any new business policy.

Denis Kessler, chairman and CEO of French reinsurer Scor SE, summed it up when he told a conference recently that the risk of pandemics was like war.

"We exclude war – it is not insurable," he said.

But as industries that span travel and hospitality to design and manufacturing return to a new normal, huge demand causes insurers to figure out how they can put pandemic risk in the policy without making them prohibitively expensive.

An example is the film and television industry. [1

9659002] The US company SpottedRisk has developed a model based on years of data on the political and economic environment of movie theaters in 150 countries, as well as a one-year COVID-19 shutdown data, to come up with a pricing mechanism to cover the risk of production ceases due to the pandemic.

"I had been told by more than 20 industry insiders that it would be impossible, but we found a way," said SpottedRisk CEO Janet Comenos.

The company, which refused to name its customers, said that its insurance has enabled 19 independent film and television productions with budgets between $ 1 and $ 85 million to film in locations around the world.

The SpottedRisk policy, which typically costs between $ 50,000 and $ 80,000 for $ 1 million of covers, helps fill a gap in Hollywood where independent filmmakers have lamented the lack of coverage, and contrasts with the UK, where a government scheme for to enable film and TV production to move forward has no insurer involvement. [19659002] Although the risks of the film industry are relatively limited for limited periods of time, industries such as airlines have much higher potential losses and may prove more difficult to insure, with many insurers saying that comprehensive protection can only come back if governments provide the same type of backstop. they offer for floods or terrorist attacks in some countries.

Reconstruction

Insurers do not want to be caught again, after failing to predict the extent to which economies around the world would lock themselves in order to suppress the virus and keep judgmental health and healthcare systems floating.

"Our modeling captures infections and mortality," says Robert Muir-Wood, head of research at risk modeling company RMS.

"It did not capture all the subtlety of how governments react, driven by the number of vacant ICU beds." RMS now includes them.

The government's response meant, surprisingly, that claims on trade credits, event breaks and business break insurances were higher than for life insurance, industry sources say, as many of those who died may not have had life insurance because of their age.

"On the claims side, we had virtually no pandemic modeling skills," said Iwan Stalder, head of accumulation management at Zurich Insurance Co. ., which has since been involved in broader scenario modeling for pandemics.

Few have returned to offer pandemic coverage for non-life insurance, except where events have been planned well in advance and insurance purchased several years ago, such as the Olympics. [19659002DisruptionoftheOlympicswouldresultina"mind-blowingly"largelossof$2to$3billioninsurancesourcessay59002] Instead, insurers have asked governments for help.

The United Kingdom, the European Union and the United States are all loo king at events where protection from commercial insurers would be supported by government reinsurance systems. Such systems may be cheaper than business bailouts, but the process of developing them is slow as governments struggle with the current problems.

Creative Solutions

Some say that commercial insurance companies can do more

"The private market has the ability to create solutions," said Rod Fox, CEO of broker TigerRisk Partners LLC, which helped SpottedRisk to find insurers for their film and TV policies.

Another way to cover COVID-19 may be to repackage pandemic risk as a liability through insurance links, sharing that risk with investors as pension funds.

"It became clear to us early in the pandemic that the models that were suitable before COVID were no longer suitable," says Scott Mitchell, portfolio manager for Life ILS at the fund manager Schroders PLC. Who were involved in it. "

Schroders has developed new types of life ILS that take into account factors outside of mortality.

Insurance companies also work with so-called parametric policies, which automatically pay out a certain amount when a certain trigger is reached, such as a government shutdown.

"If you set a limit around it, you can price the risk," says Greg Medcraft, Organization for Economic Co-operation and Development and Finance Manager.

"Too low probability, high-impact events such as climate change, cyber , pandemics – you have to have a new way of thinking. "

While pandemics as a whole are difficult, some insurance companies have managed to cut out small parts of the risk, for example to provide travel insurance for short periods, or additional medical insurance for coronavirus patients after they leave the hospital.

However, policyholders may need to accept more costs in the future.

Companies will probably need to show insurance companies that they minimize their risks, for example by requiring a negative COVID-19 test for spectators at live events, says Paula Jarzabkowski, Professor of Strategic Management at C [UniversityofLondon

And for To enable insurers to collect enough premiums to cover pandemic risks, interruption insurance may need to be mandatory, such as car insurance, she added.

"It ensures that everyone who is prone to the potential risk takes some degree of responsibility towards it."

More insurance and risk management news about the coronavirus crisis here . [19659002]

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