Lloyd’s proposes three solutions to fast-track COVID-19 recovery and tackle systemic risk

Specialist re/insurance marketplace Lloyd's of London has laid out three ways the insurance industry could fast-track global economic and societal recovery from the impacts of COVID-19 pandemic. These include three ‘open source’ frameworks, namely ReStart, Recover Re and Black Swan Re.

Lloyd's believes that the solutions and frameworks, developed in conjunction with our UK and Global Advisory Groups, will help build future resilience across global supply chains as well as the digital economy, and preparation and protection for the next systemic catastrophic event.

The proposals seek to address short, medium and long-term challenges businesses face as they begin to recover and reopen, including solutions against the threat of further waves of COVID-19.

The first potential new insurance solution that the Lloyd’s market is developing is a non-damage business interruption solution called ReStart. It is being developed by pooling limited capacity from several Lloyd’s market participants. ReStart would initially be aimed at smaller businesses (SMEs), offering a range of limits that ensure it is affordable for customers, without requiring any government support.

Recover Re sets out a proposed ‘after the event’ insurance product framework, that could provide immediate relief and cover for non-damage business interruption over the long-term, including the current COVID-19 pandemic. If implemented, this could be an efficient way to inject commercial and government funds into the economy, providing relief to customers with limited borrowing capacity. This framework could be implemented in any country where the government has the resources and industry commitment to support it.

Lastly, Black Swan Re is a reinsurance framework for government and industry partnership that could better protect customers from the devastating and long-term impacts of systemic catastrophic events – from another pandemic, or global supply chain disruption, to the interruption of critical infrastructure or utilities. The framework would provide reinsurance for commercial non-damage business interruption cover for black swan events through industry pooled capital, backed by a government guarantee to pay out if ever the pool had insufficient funds.

Furthermore, Lloyd’s is developing a Centre of Excellence, supported by up to £15 million in seed capital investment, to build resource and capability to better understand, model and create products that better protect customers against systemic risks, including pandemics. This will include new technical capabilities and services to support insurers, and academic partnerships to develop a better understanding of systemic risks and customers' emerging needs from the insurance industry.

Lloyd’s Innovation Lab is working with insurtechs that can provide some of these capabilities, including exploring the application of an epidemic tracker to better evaluate and underwrite pandemic risk, as well as solutions to help close the insurance gap for systemic risks.

In parallel, Lloyd’s Product Innovation Facility is focusing on innovating products to respond to an accelerated shift towards intangible-driven business models in response to COVID-19.

The proposed frameworks and solutions follow Lloyd’s confirmation that the market will pay out in the range of $3bn to $4.3bn to its global customers as a result of the far-reaching impacts of COVID-19.

Lloyd’s chairman, Bruce Carnegie-Brown, said: “The purpose of insurance is to help businesses and communities manage the risks they face, enable them to recover quickly from disasters by paying claims, and provide the security that allows them to innovate, develop and drive economic growth.

“COVID-19 has demonstrated that there is much more we can do to support our customers by providing protection for the changing risks they face. Some of these risks are of a scale that require partnership with governments globally and this report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world.”