Lloyd's: Better protecting society against systemic catastrophic events requires joint efforts from the re/insurance industry and governments

2 July 2020 — Daniela GHETU
As businesses across the world begin to recover and reopen, Lloyd's published a report proposing three re/insurance solutions that would allow tackling future COVID-19 and other catastrophic events in a sustainable manner, thus better protecting customers, with a special attention paid to SMEs.

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. The three solutions proposed by Lloyd's are 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). They are detailed in Lloyd's "Supporting global recovery and resilience for customers and economies: the insurance response to COVID-19" Report.

Bruce CARNEGIE-BROWN, Lloyd's Chairman, said:

"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."


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 GBP 15 million 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.

According to mid-May's Lloyd's calculations, the market will pay out in the range of USD 3 billion to USD 4.3 billion - 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.


The full report is available online, in two sections:
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