France is working on a new mechanism for pandemics insurance cover that could entail some state backing, and is exploring funding options to have a scheme in place ahead of another potential coronavirus lockdown, Axa’s Chief Risk Officer said.Companies in France and elsewhere have been hit by losses as governments enforce lockdowns to curtail the disease’s spread, which are only just easing.
But business interruption clauses in insurance contracts do not often cover such exceptional and widespread events, adding to pain for firms as the economy sinks.
A working group set up by French Finance Minister Bruno Le Maire, which includes lawmakers, business lobbies, France’s insurance association and public reinsurer CCR, is examining further insurance options to cover events like pandemics – and aims to put forward proposals by the first half of June, Axa’s Renaud Guidee told Reuters.
“From an insurance perspective the work would focus on non-damage business interruption,” Guidee said in a phone interview.
Existing policies have hit a hurdle as the virus is not causing any physical damage, often a pre-requisite to trigger payments.
“It is an exceptional risk, because it is universal, systemic, it cannot be diversified, it cannot be pooled between insurers’ portfolios, hence the need for public-private partnership,” Guidee added.
One of the options under discussion is to mimic the CatNat regime in France where CCR (Caisse Centrale de Reassurance) provides state-guaranteed cover against natural disasters.
“There will be a layer of losses that would have to be absorbed by insurers,” Guidee said. “At some point, beyond insurability, then the government would have to step in, just like with natural catastrophies.”
It is still unclear whether in the scheme insurers and the state would provide insurance cover proportionally from the outset, or whether the government would step in at some tipping point for insurers.
The scheme, provided with unlimited state-guaranteed cover, would also make business interruption insurance more affordable.The British insurance industry has also formed a steering committee comprising several insurance company bosses which will work with government-backed terrorism reinsurance fund Pool Re to develop pandemic cover.
“There is a political willingness for such a scheme to be up and running as early as possible, especially if we collectively had to face a second wave of COVID-19 during the year,” Guidee said.
As a result, some countries like France and Britain are looking at existing schemes, which sometimes have a surplus of reserves that could be used as a bridge to jump-start the new scheme for pandemics – providing a temporary pre-funding that would have to be paid back, Guidee added.