COVID-19: Supporting global recovery and resilience
Lloyd’s has published a report entitled Supporting global recovery and resilience for customers and economies: the insurance response to COVID-19, together with a supplementary document, Open source frameworks for systemic risk.
The solutions and frameworks within this report have been developed to respond to an urgent global need for the insurance industry to do more to help protect society as it recovers and prepares for an uncertain future. They have been developed by Lloyd’s, in partnership with its Global and UK Advisory Groups which include a number of the world’s largest insurers, as well as feedback from executives and experts across key global industries who have detailed some of the challenges they face as they begin to recover and reopen.
As the COVID-19 pandemic continues to devastate economies and communities, with impacts requiring resources that can only be accessed by governments, this report seeks to present potential solutions to address the many complex challenges ahead.
It 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). In brief they are:
· 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: 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: 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.
Centre of Excellence
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, as well as 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, the 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 and solutions to help close the insurance gap for systemic risks. Alongside this, our Product Innovation Facility is focusing on innovating products to respond to an accelerated shift towards intangible-driven business models in response to COVID-19.