Munich Re says state-backed pools should be created to cover future pandemics and says more focus is needed on other major risks such as cyber threats and climate change.

The German reinsurer says COVID-19 largely caught the world unawares, despite warnings issued by experts, and better preparation by the industry and governments is needed for future major events.

The greatest economic losses from the pandemic “by far” have been caused by business interruptions owing to lockdowns, but impacts are not insurable by the private sector alone, Munich Re says.

“We need new reliable mechanisms to insure such risks,” Chief Underwriter Stefan Golling said. “The only way to achieve this is by creating state-backed risk pools in which insurers can participate with limited capacity.”

Under such arrangements, insurers would be able to help assess risks accurately and organise distribution and claims settlement, Mr Golling says.

Munich Re says the systemic nature of very large losses has increased due to globalisation and digitalisation, with world trade growing twice as strongly as the overall economy from 1990 to 2008.

The reinsurer also warns lockdown measures have increased cyber risks as it is more difficult to safeguard the data security and processes outside a corporate network.

And it says climate change may become a systemic risk.

“The coronavirus pandemic needs to be a lesson to us all,” Board of Management Member Torsten Jeworrek said. “We must take action more rapidly and vigorously to ensure that we are not as unprepared as we were with COVID-19 for risks such as cyber attacks or climate change.

“It is possible to better safeguard against the financial consequences of such risks for the benefit of humanity. It needs to be clear that systemic risks like pandemics also require systemic countermeasures [like] the creation of state-backed risk pools to make uninsurable risks bearable.”

On climate change, Munich Re says it is crucial to acknowledge impacts and determine where risk assessments based on past data are no longer accurate due to different probabilities.

“So far, climate change has not been a systemic risk, but it will be if global warming continues unabated,” Mr Jeworrek said.

“The loss probabilities of certain natural hazards are on the rise, and we are already seeing this with severe thunderstorms and forest fires.”

Munich Re says the company’s COVID-19 related losses since June 30 have developed “with reduced momentum” for the company compared to the first two quarters.

It also expects claims “in a low three-digit-million euro range” from the Beirut explosion on August 4 and anticipates “a low triple-digit-million euro amount” for hurricanes Hanna, Isaias and Laura.

Impacts from the ongoing California wildfires are not estimated to be material.