Open-source frameworks provide blueprint for better protecting society against systemic catastrophic events
Toronto, ON (July 1, 2020) – Lloyd’s, the world’s leading specialist insurance and reinsurance market, has published a number of ways the insurance industry could fast-track global economic and societal recovery from the far-reaching impacts of COVID-19. These include three open-source frameworks, that help build future resilience through innovative partnerships and products together with a Centre of Excellence to better understand, model and provide insurance for systemic catastrophic events. The solutions and frameworks, developed in conjunction with our UK and Global Advisory Groups, are detailed in Lloyd’s new Supporting global recovery and resilience for customers and economies: the insurance response to COVID-19 report.
Following interviews with executives and experts across key global industries, the proposals seek to address short, medium and long-term challenges customers face as they begin to recover and reopen. The proposals include solutions for the reopening of businesses against the threat of further waves of COVID-19, building greater resilience across global supply chains as well as the digital economy, and preparation and protection for the next systemic catastrophic event.
As the COVID-19 pandemic continues to devastate economies and communities, with impacts requiring resources that can only be accessed by governments, there remains an urgent need to protect society as it recovers and prepares for an uncertain future. To address the many complex challenges ahead, the Report sets out three proposed ‘open source’ frameworks that are freely available for application around the world, two of which require government and (re)insurance industry partnerships. If implemented, these three frameworks could provide customer protection for further waves of COVID-19 (ReStart and Recover Re) and other future pandemics, as well as strengthening societal resilience against future systemic catastrophic events (Black Swan Re).
ReStart, a potential non-damage business interruption solution (loss of revenue without a physical damage trigger) for future waves of COVID-19 being developed by the Lloyd’s market, specifically focuses on supporting SMEs. The solution is focused on giving certainty of non-damage business interruption coverage initially to UK SMEs by pooling limited capacity across a number of Lloyd’s market participants. The product would support SMEs reopening, offering a range of limits that ensure it is affordable for customers, without requiring any government support.
Recover Re sets out a proposed ‘after the event’ insurance product framework, that could provide immediate relief and cover for non-damage business interruption over the long-term, including the current COVID-19 pandemic. If implemented, this could be an efficient way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity. This framework could be implemented in any country where the government has the resources and industry commitment to support it.
Black Swan Re is a reinsurance framework for government and industry partnership that could better protect customers from the devastating and long-term impacts of systemic catastrophic events – from another pandemic, or global supply chain disruption, to the interruption of critical infrastructure or utilities. The framework would provide reinsurance for commercial non-damage business interruption cover for black swan events through industry pooled capital, backed by a government guarantee to pay out if ever the pool had insufficient funds.
Alongside developing and sharing these frameworks, Lloyd’s is developing a Centre of Excellence supported by up to £15m in seed capital investment. The Centre will build resource and capability to better understand, model and create products that better protect customers against systemic risks, including pandemics. This will include new technical capabilities and services to support insurers, and academic partnerships to develop a better understanding of systemic risks and customers’ emerging needs from the insurance industry.
To kickstart the creation of the Centre of Excellence, Lloyd’s Innovation Lab is already working with insurtechs that can provide some of these capabilities, including exploring the application of an epidemic tracker to better evaluate and underwrite pandemic risk, as well as solutions to help close the insurance gap for systemic risks. In parallel, Lloyd’s Product Innovation Facility is focusing on innovating products to respond to an accelerated shift towards intangible-driven business models in response to COVID-19.
Lloyd’s Chairman, Bruce Carnegie-Brown, said: “The purpose of insurance is to help businesses and communities manage the risks they face, enable them to recover quickly from disasters by paying claims, and provide the security that allows them to innovate, develop and drive economic growth.
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. 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.”
Andrew Brooks, CEO of Ascot Group, said: “Now is the time for the insurance sector to step up and demonstrate its value to society. The proposals in this paper give us a target to aim at and will kickstart our industry’s response to the challenge of protecting businesses and communities, both as they recover in the short term and build resilience over the longer term. At Ascot we are looking forward to working with Lloyd’s to make this happen.”
Scott Purviance, CEO of Amwins, said: “These Lloyd’s proposals show what a positive role our industry could play as society rebuilds and recovers. We recognize that most of these proposals will need governmental support in each country to turn these good intentions into the practical solutions.”
The launch of this Report, and the frameworks and solutions within follow Lloyd’s 14 May 2020 confirmation that the market will pay out in the range of $3bn to $4.3bn to its global customers as a result of the far-reaching impacts of COVID-19. In addition to managing wide-ranging pay outs across sectors and geographies, the experts, entrepreneurs and innovators drawn together by the Lloyd’s market have already started creating new policies to support the immediate health response as well as the longer-term exit strategy. This includes the search for diagnostics, treatments and vaccinations, where one Lloyd’s syndicate^ is insuring more than 100 individual clinical trials taking place around the world investigating all stages of COVID-19. Lloyd’s is also actively working on an insurance solution to support the safe transportation of a COVID-19 vaccine (when developed) to emerging markets.
Previously, Lloyd’s has also confirmed a £15m package of support for charitable organisations responding to the pandemic, targeting healthcare, wellbeing and innovation.
1. Three open source frameworks:
- ReStart is a potential new insurance solution that the Lloyd’s market is developing to offer business interruption coverage for future waves of COVID-19, by pooling limited capacity from several Lloyd’s market participants. It would initially be aimed at smaller businesses, potentially expanding over time.
- Recover Re sets out a proposed ‘after the event’ insurance product framework, which could provide immediate relief and cover for non-damage business interruption, including the current COVID-19 pandemic, over the long-term. If implemented, this could be an efficient and predictable way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity. This framework could be implemented in any country where the government has the resources and industry commitment to support it.
- Black Swan Re is a reinsurance framework for government and industry partnership that could better protect customers from the devastating and long-term impacts of systemic catastrophic events – from another pandemic, to global supply chain disruption, to the interruption of critical infrastructure or utilities. The framework would provide reinsurance for commercial non-damage business interruption cover for black swan events through industry pooled capital, backed by a government guarantee to pay out if ever the pool had insufficient funds.
For full detail and design, please refer to the whitepaper Supporting global recovery and resilience for customers and economies: The insurance industry response to COVID-19.
2. The Global Advisory Committee consists of Oliver Bäte, CEO, Allianz; Andrew Brooks, CEO, Ascot; Thomas Buberl, CEO, Axa; Bruce Carnegie-Brown, Chairman, Lloyd’s; Greg Case, CEO, Aon; Brian Duppereault, CEO, AIG; Dan Glaser, President and CEO, Marsh & McLennan; Evan Greenberg, Chairman and CEO, Chubb; John Haley, CEO, Willis Towers Watson; Andrew Horton, CEO, Beazley; Bronek Masojada, CEO, Hiscox; John Neal, CEO, Lloyd’s; Scott Purviance, CEO, Amwins
The UK Advisory Committee consists of Andrew Brooks, Chair, Lloyd’s Market Association (LMA); Sheila Cameron, CEO, LMA; Bruce Carnegie-Brown (Chair), Chairman, Lloyd’s; Chris Croft, CEO, London and International Insurance Brokers Association (LIIBA); Richard Dudley, Chair, LIIBA; Andrew Horton, Chair, London Market Group; Julian Enoizi, CEO, Pool Re; Huw Evans, Director General, Association of British Insurers; Sian Fisher, CEO, Chartered Insurance Institute; Clare Lebecq, CEO, London Market Group; Steve McGill, CEO, McGill and Partners; Bronek Masojada, Chair, Placing Platform Limited; Dave Matcham, CEO, International Underwriting Association; John Neal, CEO, Lloyd’s; Malcolm Newman, Chair, International Underwriting Association
3. In the short term those needs include ensuring business resilience to further waves of COVID-19, safeguarding employees as they return to work, as well as providing a safe environment for customers as businesses reopen. The medium-term needs include more flexible insurance cover for a more volatile business environment, ways to increase in the resilience of global supply chains, as well as protection from cyber risk and digital economy liabilities. Longer-term, customers have an increasing need for a greater degree of risk mitigation and prevention services, as well as support for preparing their business for the next systemic catastrophic event.
4. Non-damage business interruption policies include cover for loss of revenue without a physical damage trigger. Most businesses operated without cover for non-damage business interruption for communicable disease prior to COVID-19,
5. The preliminary estimate range of $3bn – $4.3bn is derived from two scenarios:
- 5 Submitted totals together with estimated downside uncertainty range up to and including 16 March 2020.
- 6 Submitted totals together with estimated downside uncertainty range as well as assuming material social distancing rules and restrictions persist regionally and/or globally until 30 June 2020.
Lloyd’s is the world’s leading insurance and reinsurance marketplace. Through the collective intelligence and risk-sharing expertise of the market’s underwriters and brokers, Lloyd’s helps to create a braver world.
The Lloyd’s market provides the leadership and insight to anticipate and understand risk, and the knowledge to develop relevant, new and innovative forms of insurance for customers globally.
It offers the efficiencies of shared resources and services in a marketplace that covers and shares risks from more than 200 territories, in any industry, at any scale.
And it promises a trusted, enduring partnership built on the confidence that Lloyd’s protects what matters most: helping people, businesses and communities to recover in times of need.
Lloyd’s began with a few courageous entrepreneurs in a coffeeshop. Three centuries later, the Lloyd’s market continues that proud tradition, sharing risk in order to protect, build resilience and inspire courage everywhere.
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Source: Lloyd’sTags: Catastrophe, centre of excellence, coronavirus, epidemic, Lloyd's, Open Source