SCOR boss Kessler warns of consequences of mutualising COVID-19 losses

Denis Kessler, the chief executive of world's fourth largest reinsurer SCOR, has raised questions about the advisability and feasibility of introducing systems to “mutualise” operating losses resulting from pandemics such as COVID-19 citing "fundamental reasons".

Speaking with the publication Le Point, Kessler said that "this shock could change the course of history", while criticising global leaders for ignoring discussions about the risk of pandemic at the World Economic Forum's annual meeting in Davos. He noted that SCOR is well positioned to absorb this major shock, "just as it has absorbed many catastrophes in the past".

Kessler acknowledged the importance of safeguarding the financing arrangements, especially for the SMEs, but noted that the insurance market currently offers no protection against the economic consequences of a pandemic for "fundamental reasons", including the size of the risk, which he said could represent several percentage points of GDP and its non-diversifiable nature since everyone is affected at the same time.

Additionally, there is a possibility of adverse selection as only the most vulnerable companies might buy such insurance, as well as the great difficulty in measuring operating losses caused specifically by the pandemic.

"Should we implement measures to dampen the impact of the crisis on companies? Definitely," Kessler said. "Some already exist, such as furloughs and short-term hours. It goes without saying that we should safeguard financing arrangements, especially for SMEs. We should also help limit the number of bankruptcies to prevent the economic fabric of the country from being torn.

"But I have trouble seeing why and how we could institute a principle of mandatory 'national solidarity' between companies to protect them from the risk of a pandemic."

Kessler suggested that before embarking on such a project, "an in-depth assessment is crucial".

"I make a fundamental distinction here between individuals and legal entities. The principle of solidarity is fully justified between individuals, and everything possible must be done to protect those affected by the health crisis," he said.

Kessler went on to blame the global political and economic leaders for ignoring discussions about the risk of pandemic, saying that the overall "public risk management was not up to the job".

"The world’s most prominent leaders, when they met in Davos at the end of January, ignored the risk of a pandemic and instead focused on technological risks (particularly cyber risks), global warming risks, geopolitical risks and the risks posed by increasing inequality, even though the epidemic had already begun in Wuhan.

"Awareness of the exceptional seriousness of the Covid-19 pandemic therefore came both late and slowly. Many people thought that this epidemic, which started in China, would stay there and disappear. Valuable time was lost in terms of adopting and implementing measures to contain the pandemic in various regions of the world. You can even say that there was a certain level of denial regarding the magnitude of the pandemic. Until people started dying. Then virtually the whole world realized, with mounting anxiety, how unprepared governments and international organizations were for this scourge," Kessler said.