The Pandemic Risk Landscape — A Tool to Optimize the Role of the Insurance Industry

The nature and scale of the risk of future pandemics far outstrips the insurance industry’s capabilities — so any public-private partnership must make the most of them.

Photo by Mick Haupt on Unsplash

COVID-19 has revealed the expansive landscape of pandemic risk. The federal government has already committed $2.2 trillion to fund pandemic relief programs for individuals, businesses and state and local governments just for 2020. Congress is currently debating whether to commit an additional $1 billion or $3 billion with an outcome probably somewhere in between.

Meanwhile, policymakers, commercial interests, and the insurance industry have been working through how to prepare for the risk of another pandemic in the years ahead. While they may argue about how much capital the insurance industry should be asked to put at risk against future pandemics (ranging from $0 — $50 billion), even the most aggressive proposals would transfer only about 1% of foreseeable losses to insurers.

Further, those proposals would direct all of the insurance industry’s pandemic risk capacity to take on “business interruption” losses. For example, the Pandemic Risk Insurance Act would give large corporates the tools to make up for lost profits and reduced executive compensation during a pandemic. The proposed Business Continuity and Protection Program as well as Chubb’s Pandemic Business Interruption Program would provide benefits similar to those recently paid out under the Paycheck Protection Program.

None of these proposals address any of the other foreseeable pandemic exposures such as third-party liability claims, workers compensation claims or the cost to remediate contaminated property.

Without a doubt the insurance industry’s role is severely constrained compared to the enormous scale of the pandemic risk. Accordingly, policymakers must thoughtfully position insurance industry capabilities where they can have the greatest impact for those individuals, state and local governments and businesses suffering financial loss during a pandemic.

The attached Pandemic Risk Landscape is an effort to provide policymakers and other stakeholders with a practical tool to assist them to consider the optimal positioning of the insurance industry’s capabilities within a public-private partnership. Equipped with a view of the full scale and range of exposures to financial loss confronting families, governments, and businesses, policymakers may continue to conclude business interruption is the single best target of insurance industry resources within a public-private partnership. Or, they may find at least some of those limited resources should be allocated to other stakeholders and other exposures to loss.

Founder and Managing Member of Centers for Better Insurance, LLC