Collaboration at all levels is necessary to ensure future financial resilience against systemic shocks, such as pandemics and state-sponsored cyber attacks.

As these are threats which do not respect country borders, there is also a need to take an international approach to risk sharing, thought speakers participating in a live discussion at FERMA Talks. 

Amélie Breitburd, CEO, Lloyd’s Europe, mooted “Black Swan Re” as one possible model to better absorb future crises. As proposed by the Lloyd’s market in 2020, it proposes reinsurance schemes backed by governments to help cover non-damage BI in the aftermath of a major global shock.

“‘Black Swan Re’ is… a reinsurance scheme where the government can play a role. Insurers would be bolder and propose those types of products [if governments offer a backstop],” she said.

A number of countries already have risk pools set up to cover catastrophic risks such as terrorism and natural catastrophes. Pool Re is one such solution, explained Julian Enoizi, CEO of Pool Re. Such schemes aim to ensure a viable insurance market, while also working to reduce the underlying threat through sound risk management and mitigation practices.

“What you saw in 1993 when the scheme was set up, was market failure as a result of the IRA threat in the UK. We saw the same market failure in some countries after 9/11, and you’re seeing market failure happening again in effect, due to constraint in the supply of product and capacity.”

Resilience takes time and partnership

Insurance is just one tool in the toolbox, explained Oliver Wild, president of Amrae and group chief risk, insurance and internal control coordination officer, Veolia. If insurers are unable to offer corporate buyers sustainable long-term risk sharing solutions, risk and insurance managers will seek support elsewhere.

“You don’t build resilience from one day to the next,” said Wild. “You need to build that partnership over ten years or so. There needs to be a recognition on progress and the solution, and partnership needs to develop over time.”

“We need continuity and stability to build that resilience.”

The problem in dealing with emerging systemic risks is that the historical claims record is not much use.

“The insurance industry has spent 350 years looking backwards to predict the future, and actually the risks being faced by the customer now are completely different,” observed Enoizi. “As we heard this morning, it’s about reputation, supply chain and cyber. And the [insurance] market has to respond or it risks becoming irrelevant.”

“We have to look for different structures of how we can start to use predictive analysis and look at the effect of non-damage business interruption (BI) on a massive scale - and how do you design a solution.”

“The issue facing governments right now is they don’t know how to deal with it, and neither do we as insurers - so we have to collaborate.”

The problem is not in designing solutions for systemic risks per se, but finding the appetite and will at a governmental level.

Alfred Sant, member of the European Parliament, Group of the Progressive Alliance of Socialists and Democrats admitted he did not see a Europe-wide public private solution any time soon. This is despite a number of useful options for pandemic risk being proposed by EIOPA in 2020.

“There are cases where strategies must be continental in scope, including pandemic, climate change and other crisis situations, such as cyber contamination,” he said. “European solutions will be paramount.”

“There are different potential routes and EIOPA sets out the framework well. But unfortunately, I have been left with the impression the EC remains cool to such ideas.”

“Other key obstacles include the fact that not all member states have insurance or reinsurance pooling solutions in place,” said Sant. “This makes it difficult to build a new structure if nothing exists at a national level.”

“Is there enough political will to direct public funding towards this objective?” he asked. “I doubt it. As of now I do not sense there is much appetite for such an approach - I hope I’m wrong.”