The insurance industry must do more to help SMEs recover from the impact of the coronavirus pandemic and better prepare for catastrophic events in the future, according to a new report by Lloyd’s.
The report outlines three possible new open-source solutions and frameworks designed to cover risks businesses could encounter in the so-called “new normal” as they begin to recover from the crisis.
These could include offering business interruption insurance designed to support SMEs in the event of future waves of coronavirus infections by pooling non-damage business interruption coverage across a number of participants in Lloyd’s insurance market, the report said.
The proposals were developed by two panels of insurance industry experts, including the chief executives of Lloyds, Allianz, Axa and Hiscox.
“Covid-19 has demonstrated that there is much more we can do to support our customers by providing protection for the changing risks they face,” said Lloyds chairman Bruce Carnegie-Brown.
“Some of these risks are of a scale that require partnership with governments globally and this report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world,” he said.
While some of the widespread disruption to businesses caused by the coronavirus pandemic can be addressed via existing or slightly modified insurance products, the report said, some will require “new approaches” and specifically tailored products.
There is an “urgent need” to develop such new ideas in order for the insurance industry to provide customers with the protection they are asking for during the coronavirus crisis, it continued.
Two of the solutions proposed by the report would require government partnerships. The first is the introduction of a so-called “after the event” framework of insurance products, designed to offer immediate relief and cover for non-damage business interruption over the long-term.
The report said such a system, which would require government backing, would “be an efficient way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity”.
The second proposal that would require government support is the introduction of a reinsurance framework designed to “better protect customers from the devastating and long-term impacts of systemic catastrophic events,” such as another pandemic or global supply chain disruption.
Such a framework would provide coverage for these so-called “black swan” events through pooled industry capital, but would require a government guarantee to pay out if the pool ever ran out of money, the report said.
“Some of these risks are of a scale that require partnership with governments globally and this report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world,” said Carnegie-Brown.