Ferma’s president says pan-European vehicle for systemic risks not dead

Dirk Wegener, president of Ferma and global head of corporate insurance at Deutsche Bank, has told Commercial Risk Europe that while there has been little progress on a pan-European insurance-based vehicle to cover systemic risks, the European risk management federation is not ready to abandon the idea.

Calls for national public-private partnerships (PPPs) to cover risks such as non-damage business interruption (BI) caused by systemic threats were made when it became clear the commercial insurance market was unwilling and unable to cover BI losses following Covid-19 lockdowns.

As the insurance market moved into ‘exclusion mode’, risk and insurance managers worked with insurers and brokers to come up with potential solutions that could involve insurers backed up by state funds. But these concepts have, so far, failed to take off. 

Ferma called for a pan-European solution. However, sadly, this concept also appeared to fall on deaf ears as the pandemic was rapidly followed up by Russia’s invasion of Ukraine, pushing everyone into short-term crisis mode again. 

But Wegener said the concept is not dead. He explained that Ferma recently took part in a very positive roundtable meeting organised by the Organisation for Economic Co-operation and Development (OECD), which proves there is still strong support for the idea.

“The momentum was unfortunately lost because of other crises caused by the war in Ukraine. The EC is dealing with inflation, the energy crisis and other pressing matters, but this still has a priority. At the end of June we were invited to participate in a roundtable on the topic by the OECD. It was recognised that the insurance market could not handle this alone and that a PPP-style scheme would have clear advantages over pure spending of government money after the event,” Wegener said.

“This is encouraging because the consensus was that a system similar to the one we proposed, based on risk management and supported and administered by the private insurance sector, could be the way ahead to deal with systemic risks such as pandemics, cyber and natural catastrophe risks. The capability of insurers to assess and price risks and deal with claims would be critical. There was huge concern in the room about the ability of the insurance sector to bear the full impact alone,” continued Ferma’s president.

Governments around the world are currently highly concerned about finances and will not welcome another request for funding. But the PPP concept could well work if all the key players can be brought to the table to thrash out a balanced solution. It does, however, need to be done on a pan-European basis, said Wegener.

“We will need governments to support the concept financially above a certain primary layer taken by the insurance market. Hopefully, at a later stage, politicians will find the time to take the concrete steps required to make this real. There are national solutions for terror and natural catastrophes but we are now living in a global world, so national solutions are not fit for purpose for such cross-border systemic risks. Ferma will continue to push in this direction,” he said.