Biba supports Pandemic Re proposition as ‘insurance can’t cover everything’

Trade association Biba has confirmed its support for the creation of Pandemic Re in order to mitigate future potential pandemic risks – Biba’s executive director Graeme Trudgill said that the scheme would be “a good way to cater for long-term pandemic solutions”.

Speaking exclusively to Insurance Times, Trudgill explained that Biba classifies a pandemic as a fundamental risk that cannot be solely covered by the insurance sector. Therefore, a collaborative solution such as Pandemic Re, modelled on the government-supported Pool Re and Flood Re initiatives, could provide a sustainable, long-term answer to threats akin to today’s Covid-19 pandemic.

He said: “A pandemic is something that we call a fundamental risk. Insurance can’t cover everything; it can’t cover nuclear contamination, it can’t cover war and it can’t cover pandemics because they’re a global phenomenon that you can’t predict, you can’t capitalise for, you can’t model and the principle of insurance is that the premiums of the many pay for the losses of the few.

“So, when you’ve got a global situation like we have now, costing trillions, that’s way more capital than the entire global insurance industry has. It is not possible to capitalise for it.

“Our ultimate position is that this is a fundamental risk and, in the main, [the insurance industry] is not going to be able to support this kind of risk long-term, which is why we are really supportive of the new Pandemic Re that we’re speaking to Pool Re about.

“We think this is a good way to cater for long-term pandemic solutions. When you get risks that are quite wide and difficult and unattractive for insurers, like we’re seeing in terrorism and Pool Re and flooding and Flood Re, that’s when I think these joint government-industry pooling solutions are really good and they can have the expertise of the insurance industry, but then have that ultimate backstop of a pooling solution where an element of the premium’s going into it, reinsurance can be arranged and government are there as well with a backstop.

“It gives some cover to businesses going forward in the long-term, which I think everyone would like to do, but obviously is very difficult to model and do.”

Legal clarity

Trudgill added that Biba also approved of the FCA’s announcement this month that it would be seeking a court declaration to clarify the current confusion around business interruption claims triggered by the Covid-19 pandemic.

“They can read through in the cold light of day, without a prosecution, without a defence and give a steer to the ombudsman,” he continued.

However, Trudgill admitted that this will not be a quick fix and that gaining this legal clarity will still take time, dependent on the cases presented to the court and the extensions that apply in these examples.

Aside from specific event insurance policies, Trudgill said that “UK SMEs in the main can’t get pandemic cover”.

“In the main, a fundamental risk is something that can’t be insured generally,” he added.