Plans for state-backed pandemic scheme delivered to Spanish regulator

Early discussions are underway in Spain to develop a mechanism that would help protect Spanish companies against future pandemics, an audience of risk professionals was told during the annual conference of Spanish risk management association AGERS late last week.

Manuel Mascaraque, head of P&C Insurance at UNESPA, Spain’s insurance association, said during the virtual conference that a series of working groups have been created to discuss insurance-based solutions for pandemics in the country.

For the moment, the focus is on developing solutions for SMEs and self-employed professionals that find themselves without work in the wake of a pandemic.

Covid-19 and the subsequent government-mandated lockdowns caused widespread damage to the Spanish economy, which relies heavily on sectors such as tourism and hospitality. Its economy includes many SMEs and self-employed professionals, and is suffering very high unemployment as layoffs and bankruptcies occur.

One of UNESPA’s working groups aims to propose business interruption insurance solutions that could help mitigate the impact of future catastrophes. Other groups are looking into trade credit insurance and personal insurance lines.

A proposal that outlines the basic lines of pandemic insurance coverages has been drafted and delivered to DGS, Spain’s insurance regulator, and Consórcio de Compensación de Seguros (CCS), the country’s natural catastrophe pool administrator.

The next step is to engage with both relevant bodies to try and take the ideas forward, Mr Mascaraque said.

“What is clear is that any solution that we come to adopt will need to take into account a parametric coverage that is easy to apply and has some clear triggers, with the goal of providing coverages in the shape of survival capital. It would cover expenses net of benefits and wages, which are covered by other public programmes, and for a period still to be defined,” he said.

Mr Mascaraque stressed that the coverages put forward would only benefit SMEs and self-employed professionals because the figures involved would be extremely high, making it very difficult to extend any scheme to other kinds of businesses.

“We are talking about dozens of billions of euros. It would be absolutely impossible to cast too wide a net,” he said.

In UNESPA’s view, the sheer scale of potential pandemic losses means any solution must start with a collaboration between the public and private sectors at pan-European level, complemented by local sources of capacity such as CCS.

“Once a European help mechanism is defined, it would be possible to ascertain what capacity it could bring to the private market, and thus to make it available to the second and third levels of coverage,” Mr Mascaraque said. “We are talking about such enormous amounts that not even CCS would be able to afford them,” he added.

While this kind of mechanism continues to be debated, companies need to act on the fact they were mostly unprepared to deal with the pandemic.

Luis San Juan, head of Swiss Re Corporate Solutions in Spain, noted that a survey of Spanish companies’ CEOs revealed that 84% did not have contingency plans in place for pandemics when the novel coronavirus hit.

“The market offered some coverages that included pandemics, but demand for them was basically non-existent,” he said, during a roundtable at the AGERS conference.

There is always a risk that companies don’t learn their lesson on pandemic and other risks, warned Tim Jehnichen, general manager of Munich Re in Spain. He said that other systemic risks, such as climate change, also need to be acted upon.

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