The Association of British Insurers (ABI) has pointed to New Zealand’s Earthquake Commission and the UK’s Flood Re as it urges governments and the industry to find solutions for protecting against future pandemic risks.

ABI Director General Huw Evans says there will need to be a debate about how the global economy can be better insured against pandemics, and warns it will be an issue for governments as much as insurers.

“Partnerships between governments and insurance markets to help solve big problems are nothing new,” he says. “So-called protection gap entity schemes exist around the world, most commonly for flooding, terrorism and earthquakes.

“Each is structured with different levels of state involvement, but all seek to enable insurance protection for risks that would otherwise be uninsurable.”

Other examples the ABI names where government has become involved include the California Earthquake Authority and the UK terrorism reinsurer Pool Re.

The coronavirus pandemic has highlighted a lack of widespread cover under business interruption policies, designed to respond to more usual risks such as damage to premises and supplier failure.

“The size and scale of the government support packages and central bank interventions we have seen in recent days demonstrate amply why insurers have long been wary of the huge potential costs of protecting against pandemics,” Mr Evans says.

“This is not market failure, so much as recognising the limitations of the market.”

Mr Evans says providing widespread insurance cover against pandemics would be virtually impossible without state support because the amount of capital insurers would have to hold against the risk would result in unaffordable prices.

Even with limitations in place, UK insurers expect COVID-19 to be a major event with £275 million ($559 million) of travel insurance claims, and claims for cancelled events, school trips and some elements of business disruption.

“If global pandemics are to be a more regular part of our world, we need to start talking about how to protect more businesses and individuals than has been the case with COVID-19,” Mr Evans says.

The Insurance Council of Australia (ICA) declared a catastrophe for the virus last month, but has not yet made any estimate on the extent of claims and losses as the event continues to unfold.

“ICA and its members are concentrating on dealing with the immediate and myriad impacts of COVID-19 on customers and on their own businesses,” spokesman Campbell Fuller told insuranceNEWS.com.au.

“Consideration of long-term arrangements to reduce the financial impact of pandemics on the general insurance sector should form part of any inquiries at the conclusion of this crisis.”