Why didn’t we protect ourselves against the virus?

There is a separate blog to be written about how well/badly we protected each other against this virus but that is not our specialism and so we will leave that to others. What we have recently discovered is that someone had, since mid-2018, been trying to persuade businesses to buy pandemic insurance (a much fuller article can be found here). A combination of Metabiota (data scientists), Zurich Re (insurers) and Marsh (brokers) had spotted the potential economic issues for business connected to a pandemic (and for Zurich Re as life insurers) and developed a specific insurance policy to protect against it. These policies would be sold on to buyers such as pension funds which would benefit from the premiums and in the event of a claim would have to pay out to businesses but would save money on the payments they had to make to pensioners as they started dying (yes that trade off is as grim as it sounds).

Pandemic insurance would have paid out $billions to businesses globally and could have helped those hardest hit sectors such as hospitality to make it through, without the need for us taxpayers to spend unprecedented amounts propping business up. The money spent by us now, is our childrens’ and grandchildrens’ future money and it is not clear how this will be repaid.

Could’ve, should’ve, would’ve but no one did buy it and the whole story of pandemic insurance is a fascinating one that we should learn a lesson from before we all move onto the next catastrophe (antibiotic resistance anyone?).

Firstly there is an example where this approach did work. Some bright (and no doubt currently very smug) spark at Wimbledon added a pandemic clause to their event cancellation insurance in 2003, following the SARs outbreak, which looks like it will pay out $140 million. This is not directly pandemic insurance as such but it illustrate how it can work. The whole concept of insurance is that we all pay into a pot to cover a range of risks that we are exposed to, according to our financial expsoure to it and draw out if one of those risks comes back to bite us. None of us quibble at paying for fire insurance for our car or home (and it is mandated in most cases) as it is a risk that we can visualise and therefore can fear. However, fire insurance, was only developed after the Great Fire of London in 1666, people often need to see the risk come true before they will pay to insure against it.

The insurance wasn’t bought by company executives because it was a cost that they would have to have justified to their boards and shareholders. As humans we are really bad at assessing future risks (particularly long-term or rare ones) and it is hard to accept the need to pay a small premium now for a future payment that you may never collect. Perhaps unsurprisingly, demand for this type of insurance rocketed in early 2020, outside of Asia, as the world started to see the new Cov-Sars2 virus take hold there.

The demand for insurance arises at particular moments, often in response to dramatic crises that demonstrate human vulnerability.

Harold James, Princeton Historian

In reality had every business in the world issued themselves against a pandemic in 2019 then the insurers, re-insurers and backstop investors would have suffered badly and might have needed governments to bail them out. Even if that were true, they still would have acted as a shock-absorber and taken some of the losses we and as taxpayers, would be in a better place.

So what can we take from this?

Well if you are a Chief Executive, Chief Finance or Chief Risk Officer now is probably the time to start looking at what ‘once in a century’ events you are not insured against and fix it.

If you are a private individual then take some time out to imagine what could happen to you and your family and what the financial impact would be. It is always hard to have a conversation with clients about what life would be like for them if they couldn’t work due to some ill health condition or what it would be like for their partner/children if they were to die. All it takes though is an exercise in thinking the worst and then provided you have insured against it, you have boxed the problem away. You can then get on and focus on the more positive aspects of planning your finances.

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