Australian Reinsurance Pool Corporation (ARPC) CEO Christopher Wallace says extending the mandate of terrorism pools to pandemics could assist the insurance industry as its reputation is hit by COVID-19 related claim denials.

“I worry about the reputation impacts to the insurance industry,” he told a recent event hosted by the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP).

“A terrorism and pandemic scheme could provide certainty to policyholders that cover will be provided and it would be beneficial to the insurance industry so long as there is also risk transfer.”

Dr Wallace says insurers do not have the capital to cover pandemic risk, but it could be confusing to policyholders as pandemic risk becomes an excluded peril much like terrorism.

Insurers have brought test cases over contested business interruption 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.

Pandemic and terrorism events are both systemic risks with similar characteristics, but the biggest problem with insuring pandemics is the rapid speed and scale of financial response needed, he says.

“Governments have quite rightly focused on providing fiscal stimulus for pandemic relief measures to save jobs and businesses, these have included subsidies to businesses and unemployed,” he said.

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

Pools would also facilitate the involvement of reinsurers, amid likely limited retrocession appetite, by reducing and diversifying their geographic risk, he says.

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