Insurers wary of meeting growing demand for specialist pandemic cover

Brokers want to increase capacity for specialist pandemic cover but insurers are reluctant to offer protection without government backing.

A number of brokers have said they are experiencing more enquiries for specialist pandemic insurance. Last week, London market broker Miller said it had experienced a surge in interest from companies wanting to protect themselves against the next epidemic or pandemic.

While cover for the current Covid-19 outbreak is no longer available, there is a niche market for standalone business interruption (BI) losses resulting from an infectious disease outbreak or pandemic. According to brokers, a growing number of corporates are looking to buy the cover in anticipation of future outbreaks and as insurers further tighten exclusions for pandemics in traditional property and BI insurance.

Marsh launched its PathogenRX cover in 2018, which it claimed was the first insurance solution of its kind to provide financial protection to US-based businesses and their global operations affected by an infectious disease outbreak. However, despite major outbreaks of new infectious diseases – including Zika, MERS and SARS – the broker had almost no take-up of the cover.

The policy, underwritten by Munich Re, provides indemnity protection and is triggered by mortality or infections in a defined area. According to Marsh, it is now experiencing a surge in inquiries for PathogenRX and is looking to increase capacity.

“PathogenRX is an integrated pandemic risk quantification and insurance solution that provides financial protection to businesses with US and Asian pandemic risks. Interest in PathogenRX right now is tremendous. We are actively partnering with Munich Re and will be seeking additional capacity to meet demand,” a spokesperson for the broker said in an emailed statement.

Another broker told CRE that it is also seeing an increase in enquiries for specialist pandemic insurance, although noted it is still early days. “There are now clients reacting to the situation and both reviewing their current policies to see if pandemic is included and then looking to alternative innovation markets for viable solutions,” the broker said.

However, while interest in pandemic solutions has grown, insurers are reluctant to extend cover for infectious diseases, at least not without backing from governments.

“There are pandemic products available that exclude Covid-19, however this market is rather nervous about putting out terms at the moment,” a broker told CRE.

Swiss Re’s group chief underwriting officer Edi Schmid expects to see more demand for coverage against pandemics. However, insurers’ capacity to take on such a systemic risk has limits and governments must also be involved, he said on a media call.

“It is important to highlight that the capacity to provide coverage for pandemic risk is limited, it is a very systemic factor. The losses… impacts go across the whole world. It affects the underwriting side and also the financial market side. So, we can only provide pandemic cover to a limited extent, and there needs to be solutions that also involve government backup as it would go beyond the ability of the insurance industry alone,” he said.

A growing number of insurers and trade bodies have called for government backed pandemic insurance solutions. This week, the Federation of European Risk Management Associations urged the EU to support the creation of national insurance pools for future pandemic risks. The call echoed that of the UK’s Association of British Insurers and the French Insurance Federation, as well as risk manager and insurer associations in the US.

Last week, Marsh wrote to US Congress leaders and the US administration offering to help create a pandemic risk insurance programme that would support a US economic recovery from Covid-19 and ensure the country would be better prepared for any future outbreak.

Member of Congress Carolyn Maloney has already proposed legislation – the Pandemic Risk Insurance Act (PRIA) – that would create a pandemic risk reinsurance programme, similar to the Terrorism Risk Insurance Act. The PRIA would require US insurers to offer BI insurance policies, with the federal government providing a backstop.

The move is supported by US risk management association Rims.

“Rims’ external affairs committee has extended its support to congressional leaders to provide the risk professional’s perspective as they work to develop the bill’s details. That same committee also continues to meet with industry leaders, both brokers and carriers, to discuss the particulars of such a bill, how it would work and its potential effectiveness,” a spokesperson said in a statement.