Lloyd’s of London announced the novel “Black Swan” reinsurance scheme, a system backed by governments across the globe that could help businesses get insurance payouts after huge shocks such as the coronavirus pandemic.
Commercial insurance market Lloyd’s has said insurers across different countries will pay out more than $100 billion in coronavirus-related claims this year.
The new scheme proposals were made in conjunction with Lloyd’s’ global advisory committee, which includes major insurers such as Allianz and AXA.
A man enters the Lloyd's of London building in the City of London financial district in London, Britain. Image credit Reuters, Hannah McKay, File Photo
However, many firms are distressed by their business interruption policies, which do not cover the pandemic, and because of this, some companies in Europe and the United States are in dispute with insurers.
The Black Swan plan cover could be used to ensure payments after catastrophes such as a cyber-attack or solar storm destroying critical infrastructure, as well as for pandemics, Lloyd’s explained in a report published earlier in the morning.
“Our concern is you solve for pandemic and you don’t solve for the next disaster,” Lloyd’s Chief Executive John Neal pointed out to the media.
Insurers in Britain, France, Germany and the United States are seeking government-backed “Pandemic Re” cover for future possible pandemics, similar to existing pooled insurance schemes for damage due to terror attacks.
A woman crying after being told her savings were lost. Image credit Reuters UK
Neal claimed that, unlike a Pandemic Re, a Black Swan Re would help firms after “multiple systemic exposures”. However, European risk managers have called for a broader programme.
Lloyd’s, which has set up a 15 million-pound seed fund to create new products, is also proposing a government-backed after-the-event product to give small businesses a quick cash injection after the severe economic downturn due to COVID-19.
Parallelly, the market is working on a new business interruption policy for its small business customers, to insure sums of up to 100,000 pounds, which Neal foresaw could be launched later this year.
For now, Britain’s markets watchdog is taking eight insurers to court, including two Lloyd’s syndicates, to clarify whether or not some business interruption policy wordings should trigger payouts.