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Covering pandemic risks – are parametrics the answer?

For years, pandemic risk has been a standard item on risk registers. However, pandemics are unlikely to lead to physical damage to property and the financial impacts are challenging to model, meaning few organisations had any specific insurance cover. The COVID-19 pandemic and the measures taken to control its spread have therefore taken some organisations by surprise and they are now looking to their insurance policies for potential responses to the ongoing financial loss.

Marsh hosted the second instalment of the Airmic Live webinar series on 30 March and discussed how members can effectively collaborate with their advisors in an already difficult market now also dealing with COVID-19 related challenges. Below, Steve Harry, from the Financial Solutions Group at the broker, answers whether specialist coverage could have been purchased for this outbreak.

It may be a surprise to some, but the answer is yes. Although there is a sense that some insurers will seek to amend or remove extensions for pandemic events within traditional insurance products, specialist pandemic parametric products exist to fill the gap.

The Marsh, Munich Re and Metabiota “PathogenRX” parametric product mitigates or overcomes several challenges faced by risk managers:

  1. Modelling and estimating the impact of pandemic and epidemic risks.
  2. Protecting against the financial loss stemming from a pandemic or epidemic.
  3. Speed and ease of settlement in a time where cash is king.

In terms of the first challenge, the Metabiota Pathogen Sentiment Index is a tool that estimates public fear and behavioural change driven by a pandemic or epidemic. An organisation can use this to estimate its financial loss from a pandemic event, supporting sensible decisions around risk management strategies and limit requirements for potential cover.

In the event of a pandemic, the product uses straightforward triggers such as mortality rates or border closures in a given area to provide indemnity protection for future vial illnesses. Like many parametric tools the policy is flexible and bespoke to the organisation.

Each PathogenRX policy is bespoke, meaning premium rates are likely to be higher than for traditional insurance policies. However, risk professionals are being challenged by their senior leadership to seek out alternative options for cover.

The COVID-19 outbreak has demonstrated that the business environment, with its reliance on global supply chains, international travel and technology can be affected at an unseen speed and scale, with serious ramifications for the cash flow and bottom line of organisations.

Outside of considering parametric insurance, more traditional insurance questions that risk managers should be working through.

  • Scope of current covers and the potential for any recoveries.
  • Notification of losses and preliminary quantification.
  • Changes in risk profile and resulting premium adjustments.
  • Repurposing of the business and flexibility of cover.
  • Projections for impact on rates and cover generally.
  • Future impact on the organisation’s risk appetite and risk management strategy

Marsh is managing a significant pipeline of enquiries for PathogenRX – contact Steve.Harry@marsh.com if you’d like to hear more, or for more information related to the COVID-19 pandemic visit the Marsh UK pandemic risk resource hub.