Australian Reinsurance Pool Corporation (ARPC) CEO Christopher Wallace has flagged that terrorism pools could be well placed to extend their expertise to pandemics given the events have characteristics in common.

“There are strong shared themes between pandemic and terrorism with regard to their terrorising effect on society, the economic harm caused, and that these impacts are influenced by the health and security environments,” he said.

A declared pandemic is similar in process to a declared terrorist incident, he told a recent event hosted by the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP).

Both can be declared, both have aspects of social disruptions and risk mitigation through government, and they both suit public-private risk sharing mechanisms.

Dr Wallace also says he is concerned about the reputational impacts to the insurance industry as pandemic risk is being excluded from insurance policies, much like terrorism.

Insurers have brought test cases over pandemic exclusions in Australia and the UK, while a number of legal battles are also being fought on other fronts.

“The important focus on testing the effectiveness of pandemic exclusions needs to be balanced with other solutions to address the risk so that the insurance industry remains relevant,” Dr Wallace said.

“Insurers do not have the capital to cover pandemic risk, but it could be confusing for policyholders and having a risk transfer process can only help to build the importance and value of private insurance.”

Dr Wallace says the biggest problem with insuring pandemic is the rapid speed and the massive scale of the financial response needed, and many schemes have state guarantees that would be inadequate for the scale of outbreaks.

“An effective pandemic business interruption response ideally would target small business, have a limited time duration, and be simple or front-end paid,” he said.

“A traditional business interruption insurance payment after the event will not deliver the support needed. A targeted, fast and simple defined benefit for pandemic peril would target the support where it is needed most.”

Pools would also enable reinsurers to deploy their scarce capital to different geographic regions, amid likely limited retrocession appetite.

“The limiting of capacity by size and region should enable a reinsurer to still participate in a limited way in supporting future pandemic pools which still diversifies their risk,” he said. “Not every country experiences the pandemic in the same way.”

Dr Wallace says pools have relationships with government, or are a part of government and can bring about community rating in situations where risk rating makes premiums unaffordable for customers.

“Governments are often compensated for their risk bearing roles through the pools,” he said.

Dr Wallace is President of ITPRIP, which was launched in 2015 to support closer international collaboration between sovereign-backed terrorism pools.