Survey: Pandemic insurance
The role of Bermuda in future pandemic coverage
The re/insurance market is working hard to develop appropriate coverage for pandemics—a risk that has come surging to the forefront of public consciousness. Where does Bermuda fit into this developing market? We asked readers.
“A third of respondents thought that a lot of government support would be needed.”
The risk of a global pandemic and the potentially devastating effects on the economy, with the associated losses to the re/insurance industry, were mostly an academic subject within the market until March 2020.
While the prospect was often discussed and raised by prominent figures within and outside the sector, the reality of how widespread the impact of the spread of a disease such as COVID-19 could be was challenging to conceptualise before it became a tragic reality.
As the world begins to move on from the chaos of the past 18 months and turn towards a more uncertain future, the re/insurance industry is rapidly reassessing its ability to provide protection for, and adequately price in, the risk of a similar event happening in the future.
With the topic at the forefront of the market and the general public’s minds, more carriers and brokers are beginning to look seriously at the pandemic market as an opportunity for growth and as a tricky peril which is likely to define the sector in the years to come.
Where does Bermuda fit in with all this development? As one of the most innovative hubs in the sector with a history of launching and refining new products, the Island can be at the centre of the pandemic re/insurance sector as it develops.
What do market participants think of where the sector is currently, and how do they think it will develop in future? Bermuda:Re+ILS surveyed the Island’s re/insurance sector to get a sense of what can be expected from its relationship with pandemic coverage.
A majority of our respondents, some 64 percent, said that the industry remains small, with around a quarter saying that it was on its way to a size of some substance. No-one defined Bermuda as a ‘world leader’ in the sector (Figure 1).
Figure 1:
Does pandemic re/insurance exist in Bermuda?
However, given a more forward looking perspective, the opinions of our respondents began to shift in a more optimistic direction. More than half of those surveyed, representing around 56 percent, said that they expected the Island’s pandemic insurance market to show “quite a lot” of growth in the next five years, with none expecting it to remain stagnant or offer very little growth (Figure 2). Just 11 percent of respondents said that they expected it to grow a lot over that period.
Figure 2:
How much do you think Bermuda’s pandemic insurance market will grow in the next five years?
One issue that has been consistently raised by the market is whether it will be possible to insure pandemic losses without significant support from governments or supranational organisations such as the United Nations.
Given the complexity and economic variables surrounding the issue, it is unclear whether private risk markets could handle the volume of concurrent claims that would have been presented by the COVID-19 pandemic, for example, and our survey showed similar attitudes in the Island’s re/insurance market.
A third of respondents thought that a lot of government support would be needed and/or that governments would have to take the lead on providing pandemic coverage, with 12 percent saying that little government support would be needed, and 22 percent saying it could be left entirely in the hands of private carriers (Figure 3).
Figure 3:
How much government support will be needed?
Whether insurers can write the business is one issue—whether it can be written on a profitable basis is another question entirely. As the industry has struggled with robust capacity and muted price increases relative to risks over the past five years, there are legitimate concerns about whether the market will be able to offer pandemic coverage at rates that make any sort of commercial sense.
That said, our respondents found reason for optimism, with 78 percent saying that pandemic coverage could be a profitable business for re/insurers if it is given the right support, while 11 percent said that it could be viable even if it was unlikely to provide hugely profitable margins (Figure 4).
Figure 4:
Can pandemic coverage be a profitable business for re/insurers?
Whether we get to that point of its being able to be written remains an enormous challenge which the industry is going to have to get to grips with over the coming years.
Of those surveyed, more than two thirds said they believed limited progress was being made towards resolving the challenges around insuring pandemics, with a further third expressing more optimism that the industry was moving in the right direction (Figure 5).
Figure 5:
How much progress do you think has been made towards resolving challenges around pandemic insurance*
What these figures show is the lingering uncertainty tinged with a sense of opportunity around what the re/insurance industry could do to help mitigate the effects of any future global pandemics in a more certain and well-defined manner than has been the case during the COVID-19 outbreak.
Whichever way it ends up evolving, Bermuda will surely play a significant role in the development of pandemic insurance as it has continued to do for many new products in the re/insurance world over the years.
