Regulators-insurers clash on urgency of post-COVID insurance schemes

The insurance industry’s campaign to encourage governments to develop insurance schemes for pandemic and systemic risks post COVID could be construed as being a rather brazen grab for government money without putting its own best foot forward first, Europe’s top insurance regulator warned on Thursday (November 18).

A panel discussion that discussed the potential for mandatory insurance schemes and government backstops for systemic risks earned a quick upbraiding from Petra Hielkema, the head of the European insurance regulatory body EIOPA.

“I think we should start from what steps could already be taken by the insurance industry,” Hielkema told the online conference hosted by the regulatory body IAIS. “… and then you might get to the point when you think you really need to discuss the involvement of government.”

Presenting an offer instead of demands “will bring more understanding on the other side of the table,” Hielkema said. “That was not how the discussion started.”

Proposals from the industry to date have been non-starters. “We see little appetite at the political level,” Hielkema said.

The eventual range of solutions will have to stretch well beyond industry dreams of universal mandated coverage or massive government backstops, Hielkema argued. And the eventual model for public-private partnership with insurers could take many different forms.

“There is not one kind of public-private partnership” and the next major systemic risk may not fit the COVID-19 blueprint, she argued. Instead, she said the industry should consider a wider range of options with differing pricing and differing coverage approaches.

“Mandatory insurance is not a blanket solution,” she said. Compared with mandated solutions as in healthcare, major difficulties arise with limits on liabilities and limits on penetration which “cannot increase at all costs”.

And government backstops are not first steps. “Before you get to the government backstop, steps are still needed to buffer risks along the way.”

She instead encouraged the industry to develop “the true risk analysis” and the improved view to what is and is not covered, why, and which gaps can be plugged with new products including what types of risk mitigation incentives.

“There might be a residual,” Hielkema admitted, but that won’t be where the conversation begins, she argued.

Yet her comments did not diminish industry appetite to explore potential solutions while the challenges of COVID remain recent.

“We need to get moving fast while the memory of Covid is fresh on our minds,” Cameron Murray, the head of government policy and affairs at Lloyd’s of London, told the panel.

Governments remain overburdened with pandemic “firefighting” and “any sense of urgency in finding solutions could fall away.” The relative popularity of “resilience” as a policy topic holds the best hope for insurance to wiggle in, he suggested.

Murray called on regulators to leverage their voice to force the issue with politicians. Regulators should “educate their national governments about how these structures …. could be part of the solution in the future,” Murray said.

Hielkema sidestepped with a bigger view to education. Data and risk modelling throughout the industry should be open-source to jump-start the discussions and she’d be glad to facilitate the sharing. And by the sound of it, customers will be higher on her educational priorities than politicians after the continent learned the hard way what is and is not in coverage.

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