Lloyd’s of London has called on the insurance industry to help “fast-track” the global recovery from COVID-19 as it set out a multifaceted plan suggesting various ways to achieve this.
The proposals offer medium and long-term solutions targeted at the challenges insurance customers face as they begin to recover and reopen.
The comprehensive proposals look at how insurers can use existing insurance products to help people return to work; develop new solutions to support business recovery; accelerate the reopening of society by insuring the COVID-19 exit strategy; and protect against threats like COVID-19 in the future.
Lloyd’s recognised that the threat of a second wave could make new COVID-19 business interruption cover unaffordable for customers, or loss-making for insurers. Such issues are a particular problem for areas such as liability cover in care homes and parts of the hospitality sector where the risk of transmission of COVID-19 is high and a return to lockdown would be costly.
To remedy this, the plans suggest (i) the creation of a short-term government backstop ahead of a longer-term solution; (ii) pooling insurance capital to provide some of the capacity needed to cover a second wave of COVID-19; and (iii) offering longer-term commercial policies so that insurers have a chance to recoup the claims made in the early part of the policy term over a longer period.
Part of the plan
Building future resilience is a large part of the Lloyd’s plan. It said insurers have a key role to play by offering flexible coverage for a more volatile business environment and by supporting global supply chains with insurance that offers stronger protection against interruptions.
New risks such as cyber and digital economy liabilities that have evolved and increased as people embraced digital working and commerce en masse under lockdown are included in the plans.
Lloyd’s has urged the industry to develop new solutions for this fresh and growing exposure as well as monitoring other new risks so they can create innovative solutions for them as well.
To enable faster development, Lloyd’s said: “A proportionate regulatory environment that encourages innovation including, for example, regulatory ‘sandboxes’ or temporary policy dispensations, may be required to support new product development at the pace required.”
The organisation unveiled three open source frameworks in its plan that are free for insurers to use. These frameworks, called ReStart, Recover Re and Black Swan Re (click here for more details), are designed to help insurers provide customer protection for further waves of COVID-19 and other future pandemics, as well as strengthening society’s resilience against future systemic catastrophic events.
A new Centre of Excellence, supported by up to £15 million in seed capital investment, will be developed by Lloyd’s in addition to its fast-track COVID-19 recovery plan. The centre will build resources and capability to better understand, model and create products that better protect customers against systemic risks, including pandemics.
Bruce Carnegie-Brown, Lloyd’s chairman, said: “The purpose of insurance is to help businesses and communities manage the risks they face, enable them to recover quickly from disasters by paying claims, and provide the security that allows them to innovate, develop and drive economic growth.
“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.”
Lloyd’s plans, which it developed with its UK and global advisory groups, are detailed in its report “Supporting global recovery and resilience for customers and economies: the insurance response to COVID-19” report published on June 30, 2020.
The report follows news from Lloyd’s on May 14 that the market will pay out between $3 billion and $4.3 billion to its global customers as a result of COVID-19.
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