Risk Sharing Mechanisms To Mitigate The Financial Consequences Of Pandemic Risk: Economic And Social Insurance Solutions For The UK
Lead Research Organisation:
City, University of London
Department Name: Faculty of Management
Abstract
The pandemic is causing business interruption (BI) across UK businesses, resulting in unprecedently widespread and global economic losses that are too large to be absorbed in full by the insurance industry. Yet, businesses are unlikely to obtain credit for trading without access to adequate BI insurance. As the government steps in to protect businesses, the burden for taxpayers is rising exponentially. This study will develop a novel risk-sharing mechanism to effectively share pandemic BI risk between UK businesses, insurers and government.
We will conduct action research; a method where we work with partners to define the problem, act upon it, and embed actions in future learning. We have partnerships agreed with UK business, insurance industry and government stakeholders to develop a BI risk-sharing mechanism. We will evaluate and build upon short-term post-lockdown products being generated by insurers and develop new solutions with this full range of stakeholders. This will enable delivery of a sustainable longer-term governance and funding solution for supporting UK business against interruption from current and future pandemic. Our research team is perfectly equipped as we have studied risk-sharing mechanisms globally for catastrophic disasters, with our results influencing policy and practice.
Our research process and policy recommendations will (i) segment pandemic BI risk into core (must-have) and additional (good-to-have) cover elements; (ii) identify who (business, insurance, or Government) should take which elements; (iii) propose a public-private governance and funding solution that combines different strategic responses to sharing BI risk elements across UK businesses, insurance industry and government stakeholders.
We will conduct action research; a method where we work with partners to define the problem, act upon it, and embed actions in future learning. We have partnerships agreed with UK business, insurance industry and government stakeholders to develop a BI risk-sharing mechanism. We will evaluate and build upon short-term post-lockdown products being generated by insurers and develop new solutions with this full range of stakeholders. This will enable delivery of a sustainable longer-term governance and funding solution for supporting UK business against interruption from current and future pandemic. Our research team is perfectly equipped as we have studied risk-sharing mechanisms globally for catastrophic disasters, with our results influencing policy and practice.
Our research process and policy recommendations will (i) segment pandemic BI risk into core (must-have) and additional (good-to-have) cover elements; (ii) identify who (business, insurance, or Government) should take which elements; (iii) propose a public-private governance and funding solution that combines different strategic responses to sharing BI risk elements across UK businesses, insurance industry and government stakeholders.
Organisations
- City, University of London (Lead Research Organisation)
- Pool Reinsurance Company Limited (Collaboration)
- Association of British Insurers (ABI) (Collaboration)
- Flood Re Limited (Collaboration)
- Confederation of British Industry (CBI) (Collaboration)
- Government of the UK (Collaboration)
- Pool Reinsurance (Project Partner)
- CBI (Project Partner)
- Flood Re (Project Partner)
- Government Actuary's Department (Project Partner)
- Association of British Insurers (Project Partner)
Publications
Jarzabkowski, P.
(2021)
Strategies for responding to pandemic risk: Removal and/or redistribution
in Journal of Financial Transformation
Schanz K
(2021)
Public-Private Solutions to Pandemic Risk
| Description | This study sought to develop an understanding of the risk-sharing mechanisms that might enable the effective sharing of pandemic BI risk between UK businesses, insurers and the government. Through action research, we focused on enabling our partners to define the problem and act upon it. We partnered with UK businesses (Confederation of British Industry - CBI), the insurance industry (Association of British Insurers - ABI) and government stakeholders (Government Actuary's Department - GAD) in their efforts to develop a BI risk-sharing mechanism. Bringing in our knowledge and experience on risk-sharing mechanisms from around the globe for other catastrophic disasters, we worked with them in evaluating and developing BI interruption solutions to enable the continuation of UK businesses trading. We encouraged and supported a line of communication between the UK businesses, insurers and government for supporting UK businesses against interruption from current and future pandemics. Through this research, we sought to inform policy and practice in the emergent solutions of sharing BI risk in the UK. Having a closer and more granular look at how pandemic BI risk can be dealt with from a risk transfer point of view and with a clear focus on public-private partnerships, we developed a typology informed by the various proposals in the UK on possible solutions for BI insurance. Based on our action research, we developed this typology into a strategic response framework that evaluates four strategies for responding to pandemic risk for three audience groups: the insurance industry, government decision-makers and policymakers, and UK businesses. |
| Exploitation Route | These results have already been used to inform Professor Jarzabkowski's reporting to the House of Lords Parliamentary hearing, her work on the Pool Re submission to the UK National Resilience Strategy and in a confidential submission by the Association of British Insurers to the government. They are thus already part of submissions and evidence that has been provided for potential future use for policy making and for economic resilience to future pandemic and other systemic risk. |
| Sectors | Financial Services, and Management Consultancy |
| URL | https://www.genevaassociation.org/research-topics/socio-economic-resilience/public-private-solutions-pandemic-risk-research-report |
| Description | This study sought to develop an understanding of the risk-sharing mechanisms that might enable the effective sharing of pandemic BI risk between UK businesses, insurers and the government. Through action research, we focused on enabling our partners to define the problem and act upon it. We partnered with UK businesses (Confederation of British Industry - CBI), the insurance industry (Association of British Insurers - ABI) and government stakeholders (Government Actuary's Department - GAD) in their efforts to develop a BI risk-sharing mechanism. Bringing in our knowledge and experience on risk-sharing mechanisms from around the globe for other catastrophic disasters, we worked with them in evaluating and developing BI interruption solutions to enable the continuation of UK businesses trading. We encouraged and supported a line of communication between the UK businesses, insurers and government for supporting UK businesses against interruption from current and future pandemics. Through this research, we sought to inform policy and practice in the emergent solutions of sharing BI risk in the UK. Having a closer and more granular look at how pandemic BI risk can be dealt with from a risk transfer point of view and with a clear focus on public-private partnerships, we developed a typology informed by the various proposals in the UK on possible solutions for BI insurance. Based on our action research, we developed this typology into a strategic response framework that evaluates four strategies for responding to pandemic risk for three audience groups: the insurance industry, government decision-makers and policymakers, and UK businesses. These results have already been used to inform Professor Jarzabkowski's reporting to the House of Lords Parliamentary hearing, her work on the Pool Re submission to the UK National Resilience Strategy and in a confidential submission by the Association of British Insurers to the government. They are thus already part of submissions and evidence that has been provided for potential future use for policy making and for economic resilience to future pandemic and other systemic risk. |
| First Year Of Impact | 2021 |
| Sector | Financial Services, and Management Consultancy |
| Impact Types | Societal,Economic,Policy & public services |
| Description | House of Lords Parliamentary Select Committee |
| Geographic Reach | National |
| Policy Influence Type | Contribution to a national consultation/review |
| URL | https://committees.parliament.uk/oralevidence/1782/html/ |
| Description | Professor Jarzabkowski was invited to be a member of the Expert Advisory Group for Pool Re initiative ReNew, which has developed a report submitted to the Government for consideration about how to address the insurability of future pandemic risk |
| Geographic Reach | National |
| Policy Influence Type | Participation in a guidance/advisory committee |
| URL | https://www.poolre.co.uk/the-creation-of-a-public-private-catastrophic-risk-partnership/ |
| Title | Risk Sharing Mechanisms To Mitigate The Financial Consequences Of Pandemic Risk: Economic And Social Insurance Solutions For The UK, 2021 |
| Description | These data were generated as part of a fifteen-month ESRC-funded action research project aiming at enabling our key partners as they endavoured to generate solutions that can be applied to sharing business interruption (BI) risk from pandemic. The project involved: (1) attending meetings as participants where, as part of our action research objective we interacted closely with our partners, the UK businesses (Confederation of British Industry - CBI), the insurance industry (Association of British Insurers - ABI) and government stakeholders (Government Actuary's Department - GAD); and (2) collecting documentary data that we used to inform our understanding of the problem and the emerging solutions. The documentary data comprise (1) media articles around the problem of BI risk against the pandemic both in the UK and around the world, as well as the discussed and implemented solutions; (2) reports and announcements about the problem and the implemented solutions from the insurance industry, the UK businesses and the government; and (3) the evolving impact outcome of our action research that includes a media article, a report, and a practitioner paper that inform both industry and government action. |
| Type Of Material | Database/Collection of data |
| Year Produced | 2021 |
| Provided To Others? | Yes |
| Impact | The impacts arising from this data are, to my knowledge, from me and my team and are those already described in the other sections of this reporting. |
| URL | https://reshare.ukdataservice.ac.uk/855319/ |
| Description | ABI collaboration |
| Organisation | Association of British Insurers (ABI) |
| Country | United Kingdom |
| Sector | Charity/Non Profit |
| PI Contribution | Participate in Steering Group and Working Groups in developing the ABI Pandemic insurance solution |
| Collaborator Contribution | Data on actual and expected insurance claims for COVID-19-induced business interruption (BI); • Information on BI insurance cover gap in the UK (i.e. businesses not covered for BI pandemic risk); • Data on general uptake on BI insurance in the UK and trends; • Access to its network of > 200 member insurers to collect data (e.g. business interruption claims, client - UK businesses - needs), test our interim recommendations and disseminate the final solution; |
| Impact | We were part of a confidential report that ABI developed and presented to the UK government on how to address the insurability of pandemic risk in the future |
| Start Year | 2020 |
| Description | CBI collaboration |
| Organisation | Confederation of British Industry (CBI) |
| Department | Confederation of British Industries |
| Country | United Kingdom |
| Sector | Charity/Non Profit |
| PI Contribution | working together on insurance solutions for different sectors of British industry |
| Collaborator Contribution | Data and information on UK business needs, especially with regards to pandemic business interruption; • Support in the process of segmenting UK businesses by BI needs; • Access to its network of member firms to do focus groups in samples of the developed segments; • Access to the wider business network to test interim recommendations; |
| Impact | We presented results to Finance officers who were members of CBI to inform their thinking about insurance in light of pandemic and other such risks |
| Start Year | 2020 |
| Description | Flood Re collaboration |
| Organisation | Flood Re Limited |
| Country | United Kingdom |
| Sector | Private |
| PI Contribution | Work-shopping results |
| Collaborator Contribution | Expertise in the risk-sharing mechanism(s) of flood risk redistribution and their implementation; • Capital modelling expertise; • Expertise from Flood Re's Chief Actuary and access to insights developed by the COVID-19 Actuaries Response Group, as one of the key founders of the group; • Access to wider network to support dissemination of the findings to relevant stakeholders; • Expertise in sustainably addressing recurring (natural) catastrophes; |
| Impact | Flood Re had input into the results we developed |
| Start Year | 2020 |
| Description | GAD collaboration |
| Organisation | Government of the UK |
| Department | Government Actuary's Department |
| Country | United Kingdom |
| Sector | Public |
| PI Contribution | Work-shopping results at regular meetings and extending their impact into wider government departments |
| Collaborator Contribution | Risk modelling capability to test and provide recommendations on evolving and interim solutions; • Insights and challenges into the actuarial assumptions underpinning the risk-sharing mechanism of our proposed solution; • Information into the risk appetite of other parties involved; • Support in gathering input from other relevant Government departments such as BEIS and HM Treasury; |
| Impact | GAD had input into the results we developed |
| Start Year | 2020 |
| Description | Pool Re collaboration |
| Organisation | Pool Reinsurance Company Limited |
| Country | United Kingdom |
| Sector | Private |
| PI Contribution | Work-shopping results and relating them to the terrorism pooling mechanisms of the UK |
| Collaborator Contribution | Expertise in the risk-sharing mechanism(s) of terrorism risk removal and their implementation; • Sharing of data and rapid interim (stop-gap) products produced by the (re-)insurance industry COVID-19 steering group; • World-leading expertise in insurance product development and innovation that combines market and government capital to underpin severe and highly-volatile risk. • Access to wider network to support dissemination of the findings to relevant stakeholders; |
| Impact | Paula Jarzabkowski joined the advisory group of Pool Re's initiative ReNew, to examine how government - insurance industry initiatives could address systemic risk |
| Start Year | 2020 |
| Description | ABI conference |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Industry/Business |
| Results and Impact | Expert panel and dialogue with CEO of Pool Re, Chairman of Flood Re, and Director of ABI on February 23rd 2020. The role of public-private partnerships in protecting society from systemic threats. Association of British Insurers annual conference, which sparked a lot of questions and debate |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://www.abi.org.uk/events/2021/2/annual-conference-2021/ |
| Description | GAD seminar |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Professional Practitioners |
| Results and Impact | presentation on August 26th 2020. Impact of COVID-19: Climate change risk management webinar. UK Government Actuary's Department, cross-department seminar, which sparked discussion and debate |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://www.youtube.com/watch?v=-5K3jJHSLwA |
| Description | House of Lords Parliamentary Select Committee |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | February 24th 2020. Invited to give evidence at the House of Lords Parliamentary Select Committee on Risk Assessment and Risk Planning, United Kingdom Houses of Parliament with Bruce Carnegie-Brown, Chairman, Lloyd's of London; Julian Enoizi, Chief Executive, Pool Re; Huw Evans, Director General, Association of British Insurers; John Scott, Head of Sustainability Risk, Zurich Insurance Group |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://committees.parliament.uk/oralevidence/1782/html/ |
| Description | IFTRIP presentation |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Industry/Business |
| Results and Impact | Panel host and video presentation at October 14th 2020. Breaking cover: Coverage gaps and how to fill them. International Federation of Terrorism Reinsurance and Insurance Pools which sparked questions and discussion afterwards |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://iftrip.org/iftrip-livestream-2020/ |
| Description | Lloyd's systemic risk masterclass |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Industry/Business |
| Results and Impact | Presentation and dialogue with the CEO of Lloyd's of London and of Marsh on Systemic risk February 10th 2020. Beyond the limit. The inaugural Lloyd's of London Futureset Systemic Risk Masterclass at which significant industry debate and discussion sparked |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://www.lloyds.com/news-and-insights/futureset/futureset-events |
| Description | Westminster Policy Forum |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Professional Practitioners |
| Results and Impact | Panel on February 10th 2020. Next steps for the UK insurance industry. Westminster Business Forum policy conference at which I dialogued with industry leaders including CEO of the Chartered Institute of Insurance on consumer responses to pandemic |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://www.westminsterforumprojects.co.uk/conferences/westminster-business-forum |