FERMA: Pandemic risk pools will provide future financial resilience

In a letter to the European Commission, the Federation of European Risk Management Associations (FERMA) notes that as pandemic is a systemic risk, the (re)insurance industry cannot by itself provide material amounts of risk transfer. It encourages the Commission to support the development of public-private partnerships, probably at national level, that will be able to provide funding for those affected in future pandemics. 

”Many European businesses face inevitable and sometimes severe financial losses as a result of the pandemic event,” wrote Dirk Wegener, president of FERMA. “Insurance provides little if any cover for these risks, and insurers are introducing more exclusions and tighter conditions as policies renew. We do not expect this to change.”

“Pandemic risk, like climate change and cyber risk, is systemic. It is beyond the capital of the private insurance market to provide material capacity for transfer of risk. It will probably be necessary to create public-private partnerships for pandemic risk on a national basis, but the EU should help Member States. It could, for example, provide expertise, such as modelling and rate setting, and start-up costs.”

”There is also potential for additional EU support such as an EU backup layer, possibly via the European Stability Mechanism (ESM), allowing the convergence of all national systems to a European standard.”

”Europe already has well established schemes to manage extreme risks like terrorism and natural catastrophe. Examples include the French Caisse Centrale de Réassurance, Spain’s Consorcio de Compensación de Seguros, the UK’s Pool Re, the German Extremus scheme and nuclear industry pools in several countries. These offer possible models for new initiatives, as they have an established process to provide funds to those affected by such risks.”

Wegener also urges the Commission to learn the lessons from the current pandemic for more effective risk management of future events. The association plans to collect feedback and experience from its member associations to share with the Commission.

”Covid-19 is having a devastating impact on businesses across Europe. Since the outbreak of this pandemic, the risk managers of European corporates have been doing whatever possible to support their companies and their national governments to reduce the impact of Covid-19 and protect our societies. Risk managers are already involved in planning for successful recovery.”

”It is essential to learn from the experience of Covid-19 to use risk management to mitigate the impact of future pandemics at organisation, national and European level,” he wrote.