European risk managers have called for a public private solution to the insurance of non-damage business interruption risks as the debate over coverage for COVID risks continues.
The Federation of European Risk Management (FERMA) has written to the European Commission to request the creation of an EU resilience framework for catastrophic risks to address the severe shortage of business interruption insurance without physical damage (NDBI).
FERMA President Dirk Wegener (pic) said: “We now aim to deepen discussions with the EU, the Member States and the insurance sector, and to develop solutions for both short-term crisis management and long-term business resilience. FERMA members have expertise and experience in the field of business interruption that we want to contribute to the future resilience of European business.”
FERMA formed a taskforce, composed of experienced risk managers from FERMA national members to examine the issue in the face of the growing concern from businesses across Europe over the inability of BI policies to react to the closure of many businesses due to the impact of the current pandemic. The task force drew up a position paper that calls for a multi-layered and graduated public-private partnership, to solve the issue.
FERMA said it was concerned there is currently little to no insurance coverage available for financial losses from NDBI in case of catastrophic risks, such as the current COVID19 pandemic. It added the proposed the resilience framework would have the flexibility to respond to a range of catastrophic events, such as pandemic and massive cyber-attacks, that can create severe business losses without physical damage.
Under FERMA’s plans the framework would function on four levels:
- Enterprise-level risk management: anticipation, prevention, identification and mitigation of risks
- Transfer of risk to private insurance and reinsurance markets, developing enhanced coverage for NDBI
- National Member state pool guarantees
- European Union support for, and coordination between national governments
“This holistic approach supported by the insurance sector, national governments and EU institutions would ensure that the resilience framework has the capacity to benefit all businesses, from small and medium-sized enterprises facing immediate liquidity issues, to the largest transnational corporations concerned with supply chain and trade disruptions,” added Mr Wegener.
The proposals say that reinsurers have a key role to play in supporting the direct markets in providing cover. With the necessary reinsurance support under the proposals insurers will apply clear parameters to give risk-based assessments for contributions from enterprises to the framework funding mechanism. In turn, this would give businesses an incentive to apply risk management methodologies, such as Enterprise Risk Management, because they would be assessed on their risk management maturity.
Mr Wegener said: “A resilience framework will support the development of NDBI coverage to give European enterprises the financial security to maintain flexibility in the face of catastrophic events and incentives to apply risk management methodologies.”