1) Insuring against pandemics is frightfully complicated meaning lots of opportunity to structure product to ones advantage.
2) Be wary of your friendly neighborhood re/insurance salesman, even if he is as down-home and folksy as that fellow from Omaha.
Much less the verzekering/herverzekering or London or München boys and girls.
From Artemis, July 9:
Chubb proposes parametric risk transfer solution for pandemics
Global insurance and reinsurance company Chubb has published the details of a proposal for an enormous $1.25 trillion public private risk sharing facility to protect both small and large U.S. businesses against future pandemic risks, with part of the coverage proposed to be structured on a parametric trigger basis.....MUCH MORE
The size of the proposed pandemic risk transfer solution is significant, being much larger than those proposed by government and industry so far.
As a reminder, there are two main proposals for pandemic risk backstops and facilities doing the rounds currently, the legislative proposal for a Pandemic Risk Insurance Act (PRIA) reinsurance backstop and the industry association-supported Business Continuity Protection Program (BCPP).
Chubb’s proposal takes elements from both, but calls for the mobilisation of much more capital, from public and private markets, and also provides an innovative looking way to trigger capital for small businesses, using parametric triggers.
Chubb explains the reason a public-private market approach to pandemic risk insurance and risk transfer is required:
Some risks can create losses so great that they are not insurable in the private insurance market without substantial government support, including catastrophic terrorism, nuclear accidents and pandemics. These catastrophic events can cause massive economic disruption as governments struggle, as they have in response to COVID–19, to provide efective and timely assistance through programs cobbled together after the disaster has struck. Not surprisingly, these ad hoc programs can lead to inefciencies, substantial delay and uncertainty, as well as real and perceived unfairness in aid distribution.Chubb’s Pandemic Business Interruption Program includes two components, a $750 billion program for small businesses that provides an immediate cash infusion when a pandemic is declared and a $400 billion voluntary program for medium and large businesses with losses paid through the existing insurance industry claims process.
Both parts of the program require significant government backing Chubb believes, with the federal government proposed to take on a substantial percentage of the risk, via direct U.S. Treasury funding to insurers for the small business program, and through a newly created government–run reinsurance entity for medium and large business losses, which Chubb has dubbed Pandemic Re....
