The insurance industry response to COVID-19

Sharing risk to create a braver world

Supporting global
recovery and resiliencefor customers
and economies

Lloyd’s. Supporting global recovery and resilience for customers and economies

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Contents
Foreword 	

03

Overview 	05

1. The global impacts of COVID-19 07
2. A pathway to recovery 13
3. Building greater resilience 17
4. Protecting the future 25
5. Next steps 

33

References 	36Disclaimer
The conceptual frameworks and proposals set out inthis paper are designed to bring consumer and publicbenefit by promoting competition and innovation of
initiatives that could be developed through appropriate
partnership between the insurance industry, governmentand customers. The proposed solutions are intended
for consideration where particular cover for large scale
systemic risks is not commercially available tocustomers in any particular jurisdiction and pooling andother collective action is therefore necessary to create
the capacity to provide solutions to customers. Structures
given are by way of illustration or example only. Any
solutions would need careful competition law considerationin the relevant jurisdiction and discussion with relevant
regulators before any steps were taken to implement
the consultation proposals.

The insurance response to COVID-19

Lloyd’s. Supporting global recovery and resilience for customers and economiesForeword
COVID-19 has resulted in a humanitarian crisis on a scale theworld was underprepared for.
Society has responded collectively, with businesses, charities,
communities and governments working together to tackle thehealth crisis, provide financial support to workers and companies,
and bolster economies.
The global insurance industry is playing its part by paying claims,
donating funds to support business and society in general, andby offering flexible terms and conditions to help its customers in
the immediate aftermath of the pandemic.
Now, as economies begin to return to normality, businesses need
the support and protection insurance offers, so they can operate
post lockdown with confidence.
As research carried out for this paper shows, customers areasking our industry for products that cover them for new orheightened risks they may encounter in the new normal, protection
for a second wave of the pandemic and longer term protection
from future systemic risks.
Some of these customer needs can be catered for using existingor modified products and services; others specifically impacted
by COVID-19, such as business interruption and trade credit risk,
require new approaches. The global insurance sector must work
collaboratively and with customers to accelerate this work.
Designing cover for future systemic risks is more complex. As
the COVID-19 pandemic has shown, their impacts are too wideranging for any one sector to carry the risks alone. Solutions are
required nonetheless, because where no commercial insurance
cover exists, systemic risks are borne by customers and ultimately,
by governments and therefore the taxpayer. If the cover is implicit,
the protection is uncertain and the risk is often poorly understood.
The way forward, therefore, requires close collaboration between
insurers, brokers and customers, and between the global
insurance industry and governments, to create new vehicles thatcombine insurance capital with sovereign capacity to enable
protection against systemic risks.
To accelerate this process, Lloyd’s is proposing solutions that
could provide protection for customers’ short, medium and longterm needs. These include two potential frameworks that, if taken
forward, could provide governments around the world with risk
transfer models they could put in place immediately in partnershipwith the insurance industry.

The insurance response to COVID-19

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Lloyd’s. Supporting global recovery and resilience for customers and economies

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Foreword
There is now an urgent need to develop these ideas further –alongside the many others under way in other parts of the world –so we can quickly provide customers with the protection they areasking us for and can play our part in strengthening society’s
resilience more broadly.
We often pride ourselves as a sector on our inherent social
purpose – that is to help businesses and communities reduce
the risks they face, enable them to recover quickly from disasters
by paying claims, and to provide the security that allows them toinnovate, develop and drive economic growth. COVID-19 has
demonstrated is that there is much more we can do in thisrole and, on behalf of our customers, we should carry out
this work as quickly as possible.
The pandemic has provided us with an opportunity to cometogether to share risk and create a braver, more resilient world– and we must seize it.

Global Advisory Committee
Oliver Bäte, CEO, Allianz
Andrew Brooks, CEO, Ascot
Thomas Buberl, CEO, Axa
Bruce Carnegie-Brown, (Chair),
Chairman, Lloyd’s
Greg Case, CEO, Aon
Brian Duppereault, CEO, AIG
Dan Glaser, President and CEO,Marsh & McLennan
Evan Greenberg, Chairman and CEO,
Chubb
John Haley, CEO, Willis Towers
WatsonAndrew Horton, CEO, Beazley
Bronek Masojada, CEO, Hiscox
John Neal, CEO, Lloyd’s
Scott Purviance, CEO, Amwins
London Advisory Committee

John Neal
CEO, Lloyd’s

Bruce Carnegie-Brown
Chairman, Lloyd’s

The insurance response to COVID-19

Andrew Brooks, Chair, Lloyd’s Market
Association
Sheila Cameron, CEO, Lloyds Market
Association
Bruce Carnegie-Brown, (Chair),
Chairman, Lloyd’s
Chris Croft, CEO, London andInternational Insurance Brokers
Association
Richard Dudley, Chair, London andInternational Insurance Brokers
Association
Andrew Horton, Chair, London Market
Group
Julian Enoizi, CEO, Pool Re
Huw Evans, Director General,
Association of British Insurers
Sian Fisher, CEO, Chartered
Insurance Institute
Clare Lebecq, CEO, London Market
Group
Steve McGill, CEO, McGill andPartners
Bronek Masojada, Chair, Placing
Platform Limited
Dave Matcham, CEO, International
Underwriting Association
John Neal, CEO, Lloyd’s
Malcolm Newman, Chair, International
Underwriting Association

Lloyd’s. Supporting global recovery and resilience for customers and economies

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Lloyd’s. Supporting global recovery and resilience for customers and economies

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Overview
This paper proposes several solutions that could offer customers
greater protection against a future wave of the COVID-19 pandemic
or against future systemic risks. The table below summarises theircharacteristics, as well as those of other initiatives being developedby the wider insurance industry.

Lloyd’s also outlines additional ways in which the global
insurance industry could respond to protect customers.
Below we summarise our potential role in delivering these
proposals in the short, medium and long term. For more detailsof the potential solutions in this paper, see the accompanying
appendix, Open source frameworks for systemic risk.

Description		Example initiatives underway			or proposed

Solutions

Current state

Systemic risk typically sits withindividual customers with some
protection offered by governments,
paid for by taxpayers– Government loans– Furlough schemes– Other social security initiatives

ReStartRisk pooling between insurers to offer
non-damage business interruption
protection against future waves of
COVID-19– Potential commercial productdeveloped by the Lloyd’s market– Lloyd’s open source framework

Recover Re‘After the event’ insurance product,
providing immediate cover for nondamage business interruption, including
COVID-19, with premiums charged overthe long term to recoup costs– Lloyd’s open source framework

Pandemic
pools

Government-backed industry pools to– French Government, CCR andprotect customers from future pandemic 		 industry working groupnon-damage business interruption risk
– German GDV working group(not in scope for this paper)– UK Pandemic Re working group		– US BCPP		– US PRIA
Black Swan Re

Government-backed industry pool,reinsuring systemic risk from commercial
non-damage business interruption cover		– Potential role of global
reinsurance pools (e.g. expanding 		the scope of Pool Re in the UK)– Lloyd’s open source framework

Other insurance
solutions– Lloyd’s Systemic Risk Centre of
Excellence– Lloyd’s Product Innovation Facility– Lloyd’s Innovation Lab– Pandemic catastrophe bonds– Potential COVID-19 vaccine anddistribution cover

Developing industry capability andaccelerating new product development
to protect customers more effectively
against systemic risks
		
		
		

The insurance response to COVID-19

Short term
Respond to immediate
gaps in customer support				
Lloyd’srole

Medium term
Develop systemic risk
expertise and innovatefor the changing risklandscape– Support Lloyd’s market– Develop a Centre of
proposals to respond to
Excellence that would
the pandemic such asuse data, models and
ReStart, as well as others
human insight tothat are being developed
understand and		mitigate systemic– Work with interested
risks better, and build
governments aroundcapabilities tothe world to advise
respond if they occur
on immediate challenges		and help develop short,– Accelerate the pacemedium and long-termof Lloyd’s market
solutionsinnovation by increasing		
capacity to carry it out		and by working with Lloyd’s		Product Innovation Facility		
to develop new products

The insurance response to COVID-19

Long term
Develop structuresto protect customers
from future systemic risk

– Support and alignwith governments
and industry bodies
keen to take forward
ideas such as
Recover Re andBlack Swan Re
Note: while these are
long-term solutions,work should begin on
these structures in 2020

Lloyd’s. Supporting global recovery and resilience for customers and economies

1. The global impacts of COVID-19

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1. The global impacts of COVID-19
The devastating human loss and economic impacts of the
COVID-19 pandemic is a global catastrophe that is stretchingsociety’s capacity and resources to cope.
Governments are borrowing trillions of dollars toprevent further loss of life, support faltering
economies and respond to critical societal needs.
Millions of people and countless businesses – fromglobal conglomerates to small and medium-sizedenterprises (SMEs) – are facing the most serious
threat many have ever faced.
The insurance sector is paying out claims estimatedat $107bn to customers, while also seeing the valueof its global assets drop by $96bn, together making
it the industry’s largest ever loss 1.

Global insurance market impact
A Lloyd’s economic study into the impact of
COVID-19 estimated both underwriting losses
and a reduction in the value of investments
which insurance companies hold in order tomeet future claims.
$203bnThe magnitude of the pandemic’s financial andsocial impacts has exposed the shortcomings ofsociety’s preparedness for, and resilience to,systemic risks of this scale and nature, including
the ability of some risk transfer products andstructures to provide protection.

$116bn
$92bn

$40bn
$27bn

2020
COVID-19

2005
Hurricanes
Katrina,
Rita and
Wilma

2017
Hurricanes
Harvey,Irma andMaria

Reduction in investment values

Figure 1

The insurance response to COVID-19

2011
Tohoku,Japanearthquake
and tsunami

2001
September
11 attacks

Underwriting losses

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1. The global impacts of COVID-19

The global insurance and reinsurance industry is
responding to customers’ immediate needs, both
unilaterally and in partnership with governments
and third parties, by committing funding andresources to support and accelerate economic
recovery. Brokers and other advisory firms areworking with customers to understand theirchanging needs better and help them recoverfrom their losses. Examples include:
Discretionary or charitable payments to
support society– Insurers in France have established a $220m
solidarity fund to support the Government
bailout of SMEs
– The UK’s biggest insurers have establishedthe £100m COVID-19 Support Fund
– In many Asian countries, such as China,
Sri Lanka and the Philippines, the sector
is providing medical supplies, personal
protective equipment and financial support
to healthcare professionals

Direct customer support

The nature of systemic catastrophic events–T here are many examples of insurers
around the world deferring premiums andaccepting payment in instalments–O ther initiatives include insurers in North
America and the UK returning motor premiums
in recognition of the significant reduction in
the use of policyholders’ vehicles–A German insurance collective is making
discretionary payments of 15% of the daily
losses of policyholders not covered bybusiness interruption

Systemic catastrophic events are the mostdifficult to quantify, understand and protect
against. They can be global in impact, often hitting
multiple industries, countries and billions ofpeople simultaneously, with potentiallydevastating consequences.

Adapting and creating new products to
respond to customers’ changing needs–O ne insurer in the UK has partnered with atech start-up to launch a telematics app forvehicle fleets that are providing essential
services during the crisis–6 8 Chinese insurers have introduced return-towork products since the start of the outbreak,mainly providing coverage for employers’ liability
in the event of illness and business interruption
caused by shutdowns–O ne broker’s financial impact model helps
employers estimate the impact of COVID-19
according to the number of employees that
become infected

Their impact requires resources that can only beaccessed by governments, with response andrecovery requiring international and crossindustry collaboration. The aftershocks fromthese events mean the human and economic
impacts can take years or even decades tofully recover from.

Natural hazards

Space weather

Impact of accelerated climate change

Major public health emergencies

Pandemics

Animal disease

Widespread telecommunications or utilities failure

Widespread electricity failure

Impact severity

Global (re)insurance industry response
to COVID-19 2

Widespread transport disruption

The challenge of providing protection forsystemic risks
Systemic risks such as pandemics that cause
large economic and societal losses are unlikely
to be covered in their entirety by the global
insurance industry as the total economic loss
would exceed its financial resources. Where
cover is available, premiums can be significant
for what many customers have previously
regarded as remote threats.

The threat is less remote now, and one likely
consequence of COVID-19 is customers will
increasingly seek cover for both future pandemics
as well as other systemic threats (see Figure 2).

Widespread industrial disruption

This means the insurance industry must develop
new products and structures in those areas where
protection gaps exist today to support businessrecovery over the short-term post lockdown, andprovide greater resilience over the medium tolonger term.

Utilities failure (including internet)

Critical resources supply chain failure
Likelihood

Widespread cyber attack

Figure 2: Illustrative national systemic risk register

The insurance response to COVID-19

The insurance response to COVID-19

Lloyd’s. Supporting global recovery and resilience for customers and economies

1. The global impacts of COVID-19
The customer view
To identify exactly what customers’ priorities are,
Lloyd’s interviewed executives and experts across
key global industries including travel and hospitality,
healthcare and pharmaceuticals, retail, automotive,
supply chain and transportation, energy, andconstruction.
The research found some customer attitudes toinsurance had deteriorated, with the perceptionthat some business interruption policies have not
performed as expected. Some companies said they
were increasing the amount of risk they self-insure
through captives; others said they were taking thefirst steps in this direction.

It also identified specific needs, with customers
asking for the following:
In the short-term:– Ensure business resilience to a second waveof the pandemic– Safeguard employees as they return to work
– Provide a safe environment for customers
as businesses reopen– Provide clarity of insurance coverIn the medium term:– More flexible insurance cover for a morevolatile business environment– Ways to increase the resilience of theirglobal supply chains– In-depth assessment and protection fromcyber risk exposures– Protection from digital economy liabilities
Over the long term:– Risk prevention and mitigation support– Advice on preparing for the next systemic risk
Insurers and brokers should therefore focus
their development work in these areas to protect
customers as they restart their businesses andstart operating again, and to strengthen society’s
resilience more broadly.

The insurance response to COVID-19

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1. The global impacts of COVID-19
The role of the insurance sector
Much of this work can be carried out by the global
insurance industry itself, working collaboratively
to design and develop new products, services
and structures.
However, to overcome the challenges of offering
protection for systemic risks at scale, it must also
work with governments to combine insurance andreinsurance capital, as well as capital market
resource, with sovereign funds to provide thenecessary security and capacity to pay claims.

This Lloyd’s paper sets out ways the industry cando this. It aims to stimulate innovation and accelerate
development by proposing new solutions that could
be developed and adopted by the global insurance
industry to protect businesses and society in the
short to medium term. It also sets out proposals
for region-specific vehicles (See Figure 3) that
could offer protection against systemic risks
over the longer term.

The insurance industry is ideally placed to lead andcoordinate this work. First, because by ensuring pricereflects risk, it can drive behaviours to mitigate theimpact of events such as COVID-19 in the future.
Second, its risk expertise, claims assessment andpayment, and risk management can play a vital rolein global recovery.
Protection offered by Lloyd’s proposals
The potential solutions in this paper include
ReStart (pooled insurance capacity to protect
customers against a second wave of COVID-19);
Recover Re (a government-backed vehicle

Current COVID-19

Second wave COVID-19

Recover Re
ReStartBlack Swan Re

Figure 3: Systemic risk cover from proposed solutions

The insurance response to COVID-19

offering long term ‘after the event’ coverthat could insure against COVID-19 as well
as future pandemic risks); and Black Swan Re(a government-backed vehicle to insure
against future systemic risks).

Future pandemic

Future systemic risk

Lloyd’s. Supporting global recovery and resilience for customers and economies

2. A pathway to recovery

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2. A pathway to recovery

Covering customers’ most material risks in the short term

As governments begin to ease restrictions on businesses andindividuals, albeit to differing timetables, companies are taking
tentative steps to begin operating again.
The return to work is fraught with complexity.
Companies need to keep their employees andcustomers safe, both from the current virus and fromany potential further waves. At the same time, they
are facing restricted working conditions, fallingdemand and changing customer behaviours.
This is changing the type of risk protection they arelooking for over the short, medium and long-term.

Using existing insurance products to help
the return to work
Many businesses are concerned about providing asafe environment for their employees and customers,
while remaining commercially viable during what
could be a long recovery phase.

– Ensuring business resilience to a second waveof the pandemic– Safeguarding employees as they return to work
– Providing a safe environment for customers as
businesses reopen– Clarity of insurance cover

Supermarkets have already put in place protection
for customers and employees by restricting thenumber of individuals in stores, using personal
protective equipment (PPE) and adding physicalbarriers. However, smaller stores may lack thephysical space to ensure the safety of theircustomers. This will impact consumer confidence,businesses’ risk exposure and ultimately theircommercial viability – compounding the pressure on
many smaller retailers who were facing challenges
even before the current crisis.

The insurance industry and governments both haveimportant roles to play in facilitating this economic
reboot. The industry can offer insight into the natureof the risks to which their customers are exposed,
advising them on the steps they can take to mitigate
them, and by designing new risk transfer solutions
that protect business recovery and ongoing
operations in a post lockdown risk landscape.

Most businesses should be able to obtain the corecommercial insurances that protect their employees
and customers (e.g. public liability, employers’ liability/
workers’ compensation, professional indemnity)
as they restart operations, provided they candemonstrate (e.g. through an audit process) thatthey are following government guidelines on social
distancing and PPE usage.

Governments can provide clear guidelines on
how to reduce the spread of COVID-19 and insome areas, work with the insurance industry toprovide the security needed in the short term,
ahead of a longer term solution (see Chapter
Four for potential longer term solutions:
Recover Re and Black Swan Re).

Where government guidelines do not exist, or where
there is evidence the guidelines are not being
followed, providing cover could be more challenging.
In some instances, clarification may be required tomake existing cover relevant. This could be as simple
as confirming the scope of existing cover, being clear
about the conditions for the cover to be valid or byoffering additional explicit cover.

In the short-term, Lloyd’s research found that
customers are most concerned about:

The insurance response to COVID-19

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2. A pathway to recovery

Covering customers’ most material risks in the short term

Developing new solutions to support
business recovery
Lloyd’s research also shows that businesses areconcerned about their exposure to a second wave of
the pandemic. Many industry segments have sufferedsignificantly since the onset of the COVID-19
pandemic, and their recovery will be challenging
and heavily dependent on cashflow.
Any subsequent waves of COVID-19 would
exacerbate this situation and could lead to more
insolvencies, especially if governments begin to
reduce the financial support they have provided todate. For example, trying to resume operations amid
a second wave will be particularly difficult for airlines
operating within Europe who already face large
liabilities as a result of the EC261 regulation, whichallows customers to claim compensation for delayedand cancelled flights.
Most businesses operated without cover for nondamage business interruption for communicabledisease prior to COVID-19, but the demand for coverthat includes protection against a second wave of thepandemic will now be significant. Indeed, research 3
shows that 44% of UK SMEs expect their insurers tochange their policy terms around COVID-19 andcover it in the future.
In some countries, the threat of a second wave
could make new COVID-19 business interruption
cover unaffordable for customers (many of whom
are already struggling from the effects of thecurrent lockdown), or loss-making for insurers(many of whom are already heavily exposed to
COVID-19 losses).
This is also true in certain sectors where the riskof transmission of COVID-19 is particularly high(e.g. liability cover in care homes and parts of thehospitality sector that provide accommodation or
support to health workers), or where the impactof another lockdown would be particularly costly(e.g. event cancellation or film and TV production).

The insurance response to COVID-19

To overcome these short-term challenges andensure customers are protected, there arethree potential solutions:
1. T he provision of a short-term government
backstop ahead of a longer-term solution.
This model is already being deployed in somecountries for industries such as film and TV
production, and for trade credit insurance. Tradecredit insurance relies on the credit risk of therecipient, which becomes a more material risk in arecession. This can lead to insurers withdrawing
cover, which restricts trade and slows economic
recovery. To prevent this, governments in somecountries have stepped in to provide a backstop,taking on some of the risk.
2. P ooling insurance capital to provide some of
the capacity required to cover a second waveof COVID-19. This has the benefit of offeringcertainty of pay-out to customers in the event of aresurgence of the virus. The risk to insurers (andtherefore the cost to customers) could besignificant, but insurers could diversify this byoffering the product across different industries orcountries or even within a single country, where
future lockdowns are applied only at a local level.
Insurers could also manage their exposure by
writing to a limit or targeting specific customer
segments or industries, such as SMEs. If enoughinsurers participated in such pools or consortia,
key sectors of the economy could be protected
commercially. The Lloyd’s market is planning todevelop a new product along these lines (seeReStart below).
3. Offering longer-term commercial policies so that
insurers have a chance to recoup the claims madein the early part of the policy term over a longer
period. However, government support may still be
required given the high credit risk of such longerterm policies. Lloyd’s has developed a frameworkthat could be used to develop a governmentbacked insurance vehicle - Recover Re - that
could do this (see Chapter Four for details).

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2. A pathway to recovery

Covering customers’ most material risks in the short term

ReStart: a potential non-damage businessinterruption solution from the Lloyd’s market
Many industry segments - and SMEs in particular- have suffered significantly since the onset of
the COVID-19 pandemic. Forced closures as aresult of lockdown conditions have restricted theability of SMEs to operate. The smaller nature ofthese businesses means that recovery will bechallenging and heavily dependent on cashflow.
A second wave of COVID-19 could exacerbate
this situation and push businesses into insolvency.
ReStart is a potential new insurance solution the
Lloyd’s market is developing that could help. It
would offer business coverage for future waves of
COVID-19 by pooling capacity from several
Lloyd’s market participants. It would initially beaimed at smaller businesses, potentiallyexpanding across a broader range of SMEs andmid-market over time. It will still be subject tothe usual Lloyds performance management
requirements and competition law considerations.
Benefits could include:– Resilience for a key sector of the economy andsupport for the recovery from COVID-19– Certainty of business interruption coverage
for a second wave of COVID-19 to customers
where few alternatives are available– Contributes directly to customers andtheir recovery from COVID-19, helping
strengthen customer relationships over time
– Potential application outside the Lloyd’s
market e.g. through involvement of wider
London market and global reinsurers– Manages affordability and insurers’
exposure through risk pooling, variable limits
and industry or geographical diversification– ReStart could also provide acomplementary offering to Recover Re(see Chapter 4 for details)

The insurance response to COVID-19

Accelerating the reopening of society byinsuring the COVID-19 exit strategy
There is broad consensus that life can only return tonormality after a vaccine is developed, distributed
and administered around the world.
The insurance industry has a major role to play ininsuring the many risks associated with this medical
response. For example, there are already multiple
trials underway to test existing medicines’ impact on
COVID-19 in terms of treatment and prevention, all ofwhich require insurance, and some of which are being
insured through the Lloyd’s market. As a new vaccine
is developed further, larger scale medical trials will be
required around the world, which will carry significant
risk and will also require insurance. Insurers need to
be prepared to write these risks at short notice at asignificant scale.
Once a vaccine is approved and manufactured atscale, it will need to be transported safely and,potentially, at the right temperature around the world.
Donors of vaccines to emerging markets often
require the shipments be insured by local
governments where possible; where cover is notavailable, recipients of the vaccines are not protectedfrom losses. The Lloyd’s market is working withseveral parties to develop ways to address this gap
by providing effective cover for local vaccine
distribution supply chains.

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3. Building greater resilience

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Lloyd’s. Supporting global recovery and resilience for customers and economies

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3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

COVID-19 has highlighted the limitations of both businessresilience and traditional insurance products.
From traditional physical damage businessinterruption policies, through to motor vehicle,
public liability, employers’ liability and directors’
and officers’ insurance, customers are re-evaluating
their risks in light of changing business practices,and the effectiveness of the protection offeredby their insurers.
Specifically, Lloyd’s research identified four mainareas customers wanted insurers to provide newor different solutions for:– More flexible insurance cover for a morevolatile business environment– Ways to increase the resilience of theirglobal supply chains– In-depth assessment and protection fromcyber risk exposures– Protection from digital economy liabilities
The global insurance industry must respond urgently
to customers’ changing needs. If it doesn’t it riskslosing customers who could seek to establish or
increase their use of self-insurance through captives,or not buy cover at all.
Flexible coverage for a more volatilebusiness environment
With levels of output varying significantly as
firms ramp production up or down in responseto government restrictions, and with others
adopting more flexible business models, manyindustries are experiencing changes to theirinsured risk exposures.
Other businesses that have been forced to stop
operating altogether, and for whom risk exposure
has fallen considerably as a result, are questioning
the value they are getting from their annual
policies, which may not take this change ofcircumstance into account.

The insurance response to COVID-19

As a result, customers are seeking more flexible
coverage with dynamic risk-pricing that reflects
their real-time risk profile.
Although some insurance policies often include a
component based on use – in aviation and employer
liability/workers’ compensation, for example customers could seek coverage that adapts tovarying exposures, possibly in near real-time, in moreareas in the future. This could be offered throughincreased use of internet of things data (e.g. fromsensors, telematics, mobile phones etc.), the provisionof more on-demand policies, or simply by adding
variable components to existing cover.
Case study
Emerging sectors like the sharing economy are
already driving demand for flexible coverage4
There is already significant demand for more
flexible insurance products - not least fromthe sharing economy.
In 2018 Lloyd’s estimated that approximately
500 million people across the US, China,
Germany, France, the UK and the UAE haveshared their assets, possessions, or services in
the past three years to earn a profit.
Post COVID-19, the landscape for the sharing
economy is increasingly complex, with COVID-19
affecting user demand and risk profiles.
For users, the protection afforded by a sharing
economy platform is a key consideration, in
addition to the earning potential on offer. A
growing number of platforms are therefore
implementing mechanisms to protect their users,
including guarantee schemes or insurance coverautomatically embedded in transactions. Over the
past three years, 57% of adults who have sold
services or lent products in the sharing economy
have been insured by transaction-embedded or
personally owned cover.

Lloyd’s. Supporting global recovery and resilience for customers and economies

3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

Increasing global supply chain resilience
The COVID-19 pandemic has exposed thevulnerability of the global supply chain, with manyindustries, including automotive, manufacturing,consumer electronics and food, significantly
impacted by the near total shutdown of goods
transportation.
This global supply chain has worked well underregular conditions, but the pandemic has exposed
its shortcomings. This is in part because from acost-benefit perspective, companies have tended toprioritise cost (e.g. manufacturing) and speed (e.g. thefood sector) above the potential risks associated withborder closures and transport restrictions. Politicaltensions and border closures throughout the crisis
have added further complexity.
As a result, businesses are now looking at theresilience and diversification of their supply chains,with some companies onshoring, near shoringor dual shoring production to increase flexibility
and robustness.
While there are practical steps they can take,customers need insurance solutions that offer
greater supply chain resilience and stronger
protection against interruptions. For example,
manufacturers may look to ensure their supply
chains maintain comparable levels of risk
management and insurance cover to their own.
Supply chain cover does exist today but can becomplex to underwrite and costly to insure. Insurers
need to develop a wider range of solutions that canfulfil this growing need, but to do this they will needthe data to understand the networks that exist andthe risks to which they are exposed.

The insurance response to COVID-19

Case study
Supply chain disruption in the auto andconstruction sectors5
Even in countries where restrictions are easing,
manufacturers are still facing challenges. For
example, the Nikkei Asian Review reports that
China’s auto industry remains stuck below 40%
of production capacity, even with most of theplants back online, with parts shortages slowing
production. Construction is also experiencing
significant supply chain constraints, particularly
from supply chains in China (e.g. 30% of US
building products are imported from China), withliquidity and cashflow implications (e.g. fromcontract delays and associated penalties).

19

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20

3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

Protection for new cyber risk exposures

Protection for new digital economy liabilities

Businesses, employees and consumers are rapidly
adopting new technologies to support different waysof living and working during the pandemic, and after
lockdown ends. Whilst some industries will return toonsite working as before, many employers andemployees will incorporate new ways of working in
the future (e.g. more people remote working ortransacting more business online).

Businesses are increasingly adapting to and taking
advantage of digitised environments. This is alongstanding trend, with intangible assets comprisingmore than 80% of businesses’ value today comparedto just 32% in 1985 7. The speed of this shift isaccelerating as a result of COVID-19, with digitaltransformation now taking weeks rather than months
or years in some cases.

This is changing and increasing their risk exposure,particularly cyber risk, making cyber security anddata protection even more important for businesses.
Cyber-attacks have increased since the pandemic
began, with misuse of data becoming more prevalent
as employees access sensitive data and systems via
insecure networks or devices, and an increased
volume of network traffic places a strain on
businesses’ infrastructure.

Primary industries, such as mining, whose production
has been halted by lockdown restrictions, may makegreater use of automated vehicles and machinery infuture, with corresponding liability likely to shift fromthese businesses and their employees to the vehicle
manufacturers. This rapid transition to digital working
is potentially changing the risk profiles of businesses
across the value chain.

Customers, therefore, will need new solutions
from brokers and insurers to assess, mitigate andtransfer their growing cyber risk effectively. To caterfor this need, the insurance industry will have tobuild on its already strong cyber offering by creating
new solutions suitable for a greater and moredispersed cyber threat.

Customers need insurance solutions that offer
protection against the intangible risks andliabilities that derive from doing business digitally,
and that more accurately reflect their assets
and operations. While liability protection is wellestablished, its development and customer
support must match the increasing pace of
evolving liability risks.

Case study
The changing cyber risk profiles of businesses

Case study
Digital liability in healthcare

As businesses adapt to remote ways of working,their employees are increasingly making use of
web-based video conferencing, file-sharing, homecomputers and private internet connections forsharing potentially sensitive information. Following
the introduction of lockdown restrictions in theUK, peak internet traffic increased byapproximately 17%, and hacking and phishingattempts rose by 37%.6 The scope of thesebusinesses’ cyber risk has increased significantly,
raising questions about the effectiveness of theircyber security. Brokers are already responding byadvising customers on their changing risk profile.

Non-critical healthcare has digitised at a rapid
rate in many countries with medical consultationand prescription services often carried out
remotely. The prevalence of digital services (i.e.
e-dispensing and delivery, e-consultation) varies
by country. For example, Rwanda has leapfrogged
more developed nations by developing specificsolutions for acute issues, such as blood delivery
using drones 5. However, liability and risks
associated with digital services, including virtual
consultations and e-dispensing, are not wellunderstood, are not uniform across the industry
and are being interpreted differently by different
firms. Some companies accept full liability just as
they would for an in-person consultation; others
assume little to no liability.

The insurance response to COVID-19

Lloyd’s. Supporting global recovery and resilience for customers and economies

3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

Creating new solutions for new risks
To support customers’ fast-evolving needs inlight of these new risks and changing businessmodels, and to continue to offer a compelling value
proposition, insurers and brokers must work together
to put more time, effort and resources into developing
relevant products and services, as well as the data
and technology infrastructure to support them.
For example, it is anticipated that brokers andinsurers will need to collaborate to clarify protection
for non-damage business interruption, either withinproperty policies or as a standalone cover.
A proportionate regulatory environment thatencourages innovation including, for example,
regulatory ‘sandboxes’ or temporary policy
dispensations, may be required to support new
product development at the pace required.
For its part, Lloyd’s is encouraging innovation bypermitting syndicates to write an additional 2% ofpremiums on new product innovation on top of theirbusiness as usual plan. The Lloyd’s market is also
working with its Product Innovation Facility (see box)
to accelerate product development and design in
response to customers’ changing risk profiles.

The insurance response to COVID-19

Lloyd’s Product Innovation Facility
In 2019, the Lloyd’s market launched the ProductInnovation Facility (PIF) – an initiative with morethan £120m of capacity designed to speed up(re)insurance product development for today’s
new and emerging risks.
The PIF, comprising 27 Lloyd’s market
participants, is a ‘safe space’ for underwriters
to experiment with new ideas in a controlledway, which balances the need for appropriate
oversight with the need to innovate quickly.
It explores non-standard risks that might not fit
the traditional market such as those relating tointangible assets, new technologies and others.
The PIF will initially focus on innovating products
to respond to an accelerated shift towards
intangibles-driven business models in response to
COVID-19, through a series of productdevelopment sprints that are aimed at testing,learning and potentially scaling successful
initiatives.
By working collaboratively, the PIF promotes
different thinking and expertise to solve
customers’ problems.

21

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Lloyd’s. Supporting global recovery and resilience for customers and economies

23

3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

Protection against systemic risks: developing
industry-wide underwriting expertise to protect
customers more effectively
COVID-19 will increase demand for pandemic
products but there is not currently a significant
commercial market for them in part because, prepandemic, the risk was perceived as too remote.
This is changing now, so the insurance sector andtheir customers would benefit from new centresof excellence to develop and share greater
understanding of pandemics and other systemicrisks. These would support the development of
new insurance products, services and risk
management solutions.
These services could either be delivered by individual
insurers within Lloyd’s or through a joint industry
and government vehicle such as Black Swan Re(see Chapter 4). Capabilities could also be
aggregated and made available to the global
industry through an insights portal or application
programme interfaces (APIs).
Such centres of excellence could include support
for new product innovation, new technical capabilities
and services to support insurers, and academic
partnerships to develop a better understanding ofsystemic risks and customers’ emerging needs.

Learning and development programmes toimprove underwriting capability aroundsystemic risks
By their nature, systemic risks such as pandemics
are hard to evaluate and quantify. While newdata sources and modelling will be vital to
improving our understanding of these risks, theinsurance industry will also require new skills
and capabilities to make sense of the complex
information available and make systemic risk
more insurable.
Together with the Chartered Insurance Institute,
the Lloyd’s Market Association and other industry
bodies, Lloyd’s plans to launch a training andeducation programme to develop the skills andcapabilities required to improve the assessment,
quantification and underwriting of systemic riskin the UK/London insurance market. It could
explore risks sometimes perceived as
uninsurable, techniques for quantification andaggregation modelling, and the hazards andcauses of loss. The programme could include
launching a set of online learning courses, coordinating a series of seminars from crossindustry experts, and establishing relationships
with academic, technological and clinicalinstitutions.

Capability
Description
Option to explore as		pilot at Lloyd’s			New systemic risk
modelling capabilities
and platforms

New models and platforms to help
insurers analyse their exposure tosystemic risks, enabling better capitalmodeling, pricing and risk manangement

Data services for
pricing andunderwriting

Data services to support the pricing
and underwriting of systemic risk,
and development of new parametric
triggers for pandemic products

Exploration of early
warning indicators

Real-time monitoring of parametric triggers
to assist customers’ business continuity
planning for a potential systemic event, andto enable fast and efficient claims settlement

Risk management
and other value
add services

Services to enable more proactive
prevention of losses to customers fortheir insured and wider uninsured risks

Crisis management
process improvements

Process improvements to help insurers
continue to operate effectively during afuture crisis e.g. a hurricane during asecond wave of COVID-19

Learning anddevelopment

Learning and development programmes toimprove systemic risk actuarial andunderwriting capability across the market

Figure 4: Enhancing the industry’s capabilities around systemic risk

As part of the next steps in this paper, Lloyd’s
will start developing the capabilities listed in Figure 4.
To kickstart this process, Lloyd’s has asked thenext cohort of its innovation lab to identify insurtechs
that can provide some of these capabilities. The
global scouting process received 50 applications
from across the world, with applicants including an
epidemic tracker to better evaluate pandemic risk,
as well as solutions to help close the insurance
gap for systemic risks.
Lloyd’s has also shortlisted four early stage
companies to join a three-day ‘virtual hackathon’event, during which they will collaborate with key
stakeholders from the Lloyd’s market to develop
a solution, design or prototype to help with
COVID-19 protection.

The insurance response to COVID-19

The insurance response to COVID-19

Potential application
across global
insurance industry

Lloyd’s. Supporting global recovery and resilience for customers and economies

24

3. B
 uilding greater resilience

Providing products and services for customers’ risk needs over the medium term

Funding new pandemic risk products

The global (re)insurance industry has an opportunity
to work with the capital markets and to access theircapacity to offer parametric protection for pandemics
and non-damage business interruption throughstructures such as pandemic catastrophe bonds.
Initial research suggests capital market participants
may have the appetite to underwrite products thatoffer protection against future pandemics; at thesame time customer demand has increased
significantly.
The Future at Lloyd’s capital workstream is alreadyworking on ways to attract the type of institutional
investors that would be interested in supporting
pandemic risk. If Lloyd’s is successful in setting up
a multi-arrangement Insurance Special Purpose
Vehicle under the UK regulations, it will be able tooffer a way to access risk that investors recognise– an efficient Insurance Linked Securities (ILS)
structure that gives the same economic and tax
outcomes they are used to from similar non-UK
ILS structures.
Lloyd’s also intends to standardise as many of
the contracts as possible to create a set-up processthat becomes familiar over time to investors, legal
advisers and regulators – reducing set-up times
and costs.
While the capital markets provide an opportunity for
expansion of commercial capital to support theserisks, government partnerships are required for coverat a national level.

The insurance response to COVID-19

PandemiccatastrophebondInsurance/capital markets’ capital

While the insurance industry has the expertise tomatch pandemic risk to capital, it does not havethe capacity to do this at scale due to the systemic
nature of the risk. And yet, while the global
commercial (re)insurance industry’s total capitalbase sits at around $2 trillion,8 the capital markets
are estimated at around $180 trillion .9 Currently arelatively small proportion of this is used to takeon insurance risk as a diversifying investment tomarket risk. While there is some correlation between
pandemic and market risk, the two are not fully
correlated (whilst COVID-19 looks likely to havesparked a global recession, the reverse is not true a recession will not lead to a pandemic).

ReStart
Recover Re

Black Swan Re

Current
situation

Government/third sector capital

Size relates to amount of capital required

Figure 5: Capital sources for potential systemicrisk solutions

Lloyd’s. Supporting global recovery and resilience for customers and economies

4. Protecting the future

The insurance response to COVID-19

25

Lloyd’s. Supporting global recovery and resilience for customers and economies

26

4. Protecting the future

Frameworks for government and insurance industry partnerships to protect society over the longer term

As society recovers from the impacts of COVID-19, it must do
so in a way that makes it more resilient to the next systemic risk.
Systemic risks are challenging to predict and model,
and are so large in scale they render traditional risk
mitigation and transfer methods unfeasible, requiring
financial resources far in excess of the global nonlife (re)insurance industry’s $2 trillion asset pool 8.
As of May 2020, global government fiscal support
packages in response to the pandemic totalled$9 trillion, according to the International Monetary
Fund,10 but could reach up to $15 trillion by theend of 2020.
As the pandemic has shown, when a systemic
event occurs, given the limited commercial cover,
governments step in to protect their citizens. Thishas been effective – whether through business loans,assorted backstops or economic stimuli – and theseremain a viable means of continuing to protect
society from systemic risks. However, this approach
does not change society’s perception of systemicrisks or incentivise greater understanding or
mitigation of their impact, and means taxpayers andfuture generations end up paying the cost.
Although the global insurance industry does nothave the capacity to absorb systemic catastrophic
events (‘black swan’ events) on its own, it can help
develop national or regional structures that could
provide protection.
These structures could have several benefits. They
could ensure more of the costs of systemic event
impacts are paid for by those protected, that the risk
is modelled and understood, and therefore that theprice reflects the risk exposure and drives mitigating
behaviour, and that there is a commercial capital layer
before the risk falls to governments.
These structures could play a critical part inprotecting businesses and society more broadly
from future systemic risks, and, as Lloyd’s researchshowed, there is demand for them.

The insurance response to COVID-19

The types of systemic events that could
be covered
In order to identify the protection gaps an insurance
industry and government partnership could address,
there are two areas of risk to consider:– Risks excluded by commercial covers– Key risks on a government’s risk register
For example, future black swan events could include:– Major public health emergency: causing mass
lockdown, resulting in a significant fall in economic
activity and lost revenue– Widespread telecommunications or utilities
failure: this could take the form of a global cyberattack impacting millions of devices across multiple
industries and critical infrastructure, or space
weather. An extreme geomagnetic solar storm
could shut down critical electricity, GPS andtransport infrastructure around the world fordays or possibly months– Food or critical resources supply chain failure:
this could be a significant supply chain shock forcritical resources that could have major global
economic, political and social effects– Accelerated climate change: this could act as arisk multiplier, amplifying the effect and frequency
and severity of events such as wildfires, flooding
and other natural perils, whilst extreme local
temperatures could lead to permafrost melting or
damage to infrastructure. This could lead togeopolitical tensions, and associated economic andinvestment market damage
While these scenarios may seem extreme, in ourhighly interconnected society, they may be more likely
than people think. COVID-19 has demonstrated thatsociety cannot remain complacent, and must prepare
for catastrophes of a similar impact and duration.

Lloyd’s. Supporting global recovery and resilience for customers and economies

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Lloyd’s. Supporting global recovery and resilience for customers and economies

28

4. Protecting the future

Frameworks for government and insurance industry partnerships to protect society over the longer term

Two potential frameworks for insuringsystemic risks
Lloyd’s is proposing two national or regionalframeworks that, if taken forward, could provide
governments around the world with risk transfer
models they could put in place immediately inpartnership with the insurance industry.
Lloyd’s has published these ‘open source’
frameworks to provide a blueprint for government
and insurance industry partnerships that strengthensocietal resilience in the face of black swan events.
The first government and industry open-source
framework, Recover Re, is an ’after the event‘
insurance product that could provide small andmedium size enterprises (SMEs) with a cash injection
and recovery support, paid for over the long-termand backed by a government credit risk guarantee.
The second framework, Black Swan Re, could
provide reinsurance for commercial non-damage
business interruption cover for future systemicrisks through industry pooled capital, backed bya government guarantee to pay out if ever thepool had insufficient funds.
These two structures could be used in combination.
Recover Re could offer immediate positive impacts
to a targeted portion of SMEs, whilst Black Swan Re
could offer protection against the next crisis to awider set of businesses, creating greater resilience
to future systemic risks.
Government-backed risk pooling mechanisms are
not new, and Lloyd’s is looking at the lessons thatcan be learned for systemic risk pooling from thedifferent approaches currently adopted aroundthe world (see the supporting paper, Open
source frameworks for systemic risk, fordetails). These highlight the design options andconsiderations required as a structure forblack swan risks is developed.

Framework 1
Recover Re: insurance for immediate
relief and recovery
Recover Re is an ‘after the event’ insurance
product framework, which could provide
immediate relief and cover for non-damage
business interruption, including the current
COVID-19 pandemic, and over the long-term.
If implemented, this could be an efficient way to
inject commercial and government funds into
the economy, providing relief to customers withlimited borrowing capacity. This framework
could be implemented in any country where
government has the resources and industry
commitment to support it.
Customer benefits:– Payspremiums
over policy
term (e.g.
10-20 years)

Individual
insurers

Policyholder(business)– Claims
payments
for current
disruption– Claims
payments forpossible future
disruption– Non-damage business interruption coveragefor future waves of the COVID-19 pandemic
should disruption continue past a specified time
period or losses exceed a specified excess
Figure 6: Illustrative cashflow for Recover Re

Role of the insurance industry: to provide therisk management expertise and infrastructure
to inject capital into the economy by directly
supporting SMEs affected by the current
pandemic and which are likely to be impacted
by future waves.
Role of government: guarantee of premiums
to mitigate the risk of customers defaulting
on payments and, if required, provide initial
cashflow to cover claims payments in theearly part of the policy term.
Detailed policy design options are set out inthe supporting paper, Open source frameworks
for systemic risk.

The insurance response to COVID-19

Transmission
vehicle– Cashinjection
to coverimmediate
losses– Guarantee
againstpolicyholder
default– Performanceequalisation– Immediate cash injection and recovery
support, paid for over the long term

– Non-damage business interruption coverfor future pandemics and possibly forother systemic events

The insurance response to COVID-19

– Payment for
credit risk
guarantee– Pooling ofpremiumand risk– Guarantee
againstpolicyholder
default– Cashinjection
to coverimmediate
lossesGovernment

Lloyd’s. Supporting global recovery and resilience for customers and economies

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Lloyd’s. Supporting global recovery and resilience for customers and economies

30

4. Protecting the future

Frameworks for government and insurance industry partnerships to protect society over the longer termBlack Swan Re: a public/private partnership tobetter protect economies against systemic
catastrophic events
Black Swan Re is a reinsurance framework forgovernment and insurance industry partnershipwhich could enable insurers to provide nondamage business interruption cover that offers
customers more protection from the devastating
and long-term impacts of systemic catastrophic
events. If implemented, this structure would
enable industry pooled capital to provide
reinsurance for the impacts of future blackswan events, backed by a government guarantee
should the pooled assets become exhausted. The
design of this structure includes the requirement
for an initial commercial and industry pooled layerof funds, enabling faster pay-outs to customers,
as well as a buffer for governments before theyneed to step in.

Role of government: provide financial
guarantees to customers in the event industry
capital is exhausted, as well as support
insurers to provide policies covering future
black swan events. There are potential
efficiencies if it could be combined with othernational risk taking pools.
By definition the costs of these types of eventswould be in the trillions of dollars and, as such,the contribution from any indusry partnershipwould be relatively small in the short term.
However, the insurance industry can provide
a commercial layer to pay claims to customers
first and quickly.
Detailed policy design options are set out in the
supporting paper, Open source frameworks for
systemic risk.
Government
contribution
to the risk
will always
be a large
proportion ofan event ...

– Non-damage business interruption cover fora black swan event, certainty of cover andquick pay-out– Could cover secondary impacts of future
events such as supply chain disruption orability to access lending to help the costof relaunching a business following
black swan event-related interruption
Role of the insurance industry: provide
commercial non-damage business interruption
cover, ceding risks to Black Swan Re. Provide thepayment mechanisms that support risk mitigationand protection against systemic risks. Brokers
would need to help customers understand theimpact of more remote risks and encourage
greater protection.

Government layer

Customer benefits:

Government layer

Framework 2– Premium
payments– Claims
payments
tobusinesses... but overtime the pool
will grow andindustry’s
ability to write
commercial
cover could
increase

Figure 8: Illustrative cashflow for Black Swan Re

Pool layer

Pool layer

Commercial layer

Commercial layer

Figure 7

The insurance response to COVID-19

– Insurers’
contribution

Individual
insurers

Policyholder(business)

The insurance response to COVID-19

– Premium
payments
forguarantee

Pandemic
Pool– Payments
for losses
above
insurerthreshold– Guarantee
for future
payments

Government

Lloyd’s. Supporting global recovery and resilience for customers and economies

31

4. Protecting the future

Frameworks for government and insurance industry partnerships to protect society over the longer term

Chapter 2 outlined a potential industry framework,
ReStart, to pool insurance capital to provide targeted
non-damage business interruption cover to insure
against a second wave of COVID-19. However, moresignificant levels of commercial cover will require
collaboration between government and the insurance
industry. The table below compares the features of
Lloyd’s three potential solutions.
ReStartOverview

Insurance pool tooffer non-damage
business interruption
coverage for future
waves of COVID-19
				

Recover Re

Black Swan Re‘After the event’ insurance
product, providing
immediate cover for nondamage business interruption
including COVID-19, withpremiums charged overthe long term

Government-backed
industry pool to reinsure
systemic risk fromcommercial non-damage
business interruption
cover

Coverageoffered– Non-damage business– Non-damage businessinterruption coverageinterruption coverage forfor potential future
potential future waves ofwaves of COVID-19
COVID-19 where		
commercial cover is		
not available		– Non-damage business		interruption cover for		future pandemics
		– Could include other		
systemic events
			
				
			
				
				

– Government-backed
reinsurance of nondamage businessinterruption cover for
future systemic events
where commercial
cover is not available– Could also provide
cover against
secondary impacts offuture events such as
supply chain disruption– Would enable greater
provision of nondamage businessinterruption coverPricing– Premiums charged– A flexible pricing mechanism
andupfront for annual
would allow insurers toaffordability
policyrecoup upfront claims costs
			 over a long period (e.g. 10-20
		years), ensuring affordability		
for customers
		– Full risk cost may
not be passed tocustomers given
government backstop

Figure 9: Comparison of key features of the three frameworks

The insurance response to COVID-19

Lloyd’s. Supporting global recovery and resilience for customers and economies

32

4. Protecting the future

Frameworks for government and insurance industry partnerships to protect society over the longer term
ReStart

Recover Re

Black Swan Re– Pooled capacityfrom insurers toprovide targeted
non-damage
business interruption
cover directly tobusinesses– Participating
insurers could
ensure the product isaffordable to customers
and manage their own
exposure throughrisk pooling, variable
limits, and industry
or geographicaldiversification– Recover Re is a direct
non-damage businessinterruption productaimed directly atbusinesses– Multi-year contract orcompulsory product,
allowing insurers torecover their positions
over time– Requirement for
mandatory premium
payments over the fullterm, or cancellation
penalty to ensure insurers’
upfront claims costs
are recovered– Industry-pooled capitalwould reinsure
insurers offering
primary cover for
future systemic events– Backed by agovernment guarantee
should the pooled
assets become
exhausted– Government may berequired to guarantee
policyholders’ futurepremiums to mitigate therisk of them defaulting
on payments– If early event ofsignificant scale,government may berequired to provide initial
cashflow to cover claims
payments in the earlypart of the policy term
– Option for credit risk
mutualisation to minimise
government contingent
liability– Government would
take on the excess
claims for non-damage
business interruption
beyond whatever level
the insurance industry
carries– Relatively small– Targeted at specific SME
scale and targeted
economic segments toinitially at smaller
manage liquidity
SMEs, with scope to– Would either need to be
expand over time
a compulsory or long– Optional for customers
term contract
			
			
			
			
			
			
			
			
			

– Broadest coverage –reinsuring all national
systemic risk nondamage businessinterruption cover
beyond fixed retentions– May need to be
mandatory - to offer orto obtain - to ensure
meaningful take up,otherwise there may
be a presumption thatgovernment willcontinue to provide
implicit cover

Structureandfundingmechanisms

Risk borne– No requirementby thefor a government
government
backstop
		
		
		
		
		
		
		
		
		
		
		
		
		
		
Scale,
targetsegments

The insurance response to COVID-19

Lloyd’s. Supporting global recovery and resilience for customers and economies

5. Global collaboration:
recommendations for fast-tracking

The insurance response to COVID-19

33

Lloyd’s. Supporting global recovery and resilience for customers and economies

34

5. Global collaboration: recommendations for fast-tracking action
The global insurance industry has responded to customers’
needs in the immediate aftermath of COVID-19 by paying claims,
donating funds, and offering flexible terms and conditions.
However, the pandemic has exposed the limitationsof existing risk transfer structures for systemic risksof this scale. As thoughts turn to restart and recovery,society needs solutions that can offer protection in
the new risk landscape and, in the short term, from asecond wave of the pandemic.
The insurance industry must take this opportunity toredesign its products, services and structures so it
can deliver this outcome for its customers and build amore resilient society.
To inform the industry’s response to customers’changing needs, Lloyd’s interviewed executives
and experts from key industries around the world
to identify their concerns and the emerging risks
they are facing.
Our customers told us they have four primaryshort-term needs:– Ensuring business resilience to a second
wave of the pandemic– Safeguarding employees as they return to work
– Providing a safe environment as theirbusinesses reopen– Clarity of cover
How the insurance industry must respond:
Create new risk transfer mechanisms, such as
ReStart, that give customers the confidence ofprotection from a second wave of the pandemic
or from future pandemics.

The insurance response to COVID-19

In the medium term, customers said they werelooking for:– More flexible insurance cover for a morevolatile business environment– Ways to increase the resilience of theirglobal supply chains– In-depth assessment and protection fromnew or evolving risk exposures e.g. cyber– Protection from digital economy liabilities
How the insurance industry must respond:
Accelerate product development, supporting
data and underwriting capabilities to align tocustomers’ new needs following the impacts of
COVID-19 on business models and operations.

In the longer term, customers said they wanted:– Risk prevention and mitigation support– Help in preparing for the next systemic risk
How the insurance industry must respond:
Provide the expertise required to assess andbetter manage systemic risks, and work withgovernments to build risk transfer mechanisms,
such as Black Swan Re and Recover Re, thatprovide society with greater resilience to systemicrisks over the longer term.

Lloyd’s. Supporting global recovery and resilience for customers and economies

35

5. Global collaboration: recommendations for fast-tracking action
Lloyd’s next steps to accelerate theindustry’s response
Delivering these initiatives at the pace and scaleneeded to help customers and wider society will
require close collaboration between the insurance
industry, governments, customers, and, in somecases, the capital markets and non-governmentalorganisations. They will also take time to develop(i.e. ReStart 2-3 months; Recover Re 3-6 months;
Black Swan Re 6-12 months) so will require theindustry working independently, and withgovernments, to get started immediately.
For its part, Lloyd’s will provide seed funding of up to£15m to support this process, and use its
marketplace to act as a convenor and incubator todevelop some of these initiatives. Lloyd’s will codesign and pilot initiatives in the London market andacross the UK, with the support of its Advisory
Committee members. Actions include:– Facilitating the launch of new solutions from the
Lloyd’s market to support business recovery
following the current pandemic, including businessinterruption coverage for future waves of COVID-19
and effective cover for supply chains for vaccine
distribution to developing economies– Working with Lloyd’s Product Innovation Facility
through a series of ‘sprints’ to accelerate productdevelopment to meet customers’ changing needs
better following COVID-19– Piloting initial components of a Centre of Excellence
for systemic risk, including working with theChartered Insurance Institute, the Lloyd’s Market
Association and other industry bodies to launch a
training and education programme to develop theskills and capabilities that will be to protect
customers better against systemic risk
– Refining the open source frameworks forBlack Swan Re and Recover Re in collaboration
with the insurance industry, and selected
governments and regulators around the world– Working with Lloyd’s London and Global Advisory
Committees to establish a technical working groupto guide the development of these initiatives

The insurance response to COVID-19

Lloyd’s request of its stakeholders– Share your feedback on the ideas in this paper,or suggest new solutions– Where desirable, provide support for the initiatives
and actions proposed in this document– Work with Lloyd’s and the wider insurance industry
to develop these ideas further– Support discussion, development andimplementation of these proposals aroundthe world

Lloyd’s. Supporting global recovery and resilience for customers and economies

36

References1.

https://www.lloyds.com/news-and-risk-insight/press-releases/2020/05/covid19-will-see-historic-lossesacross-the-global-insurance-industry

2.

EY research into insurance industry responses to COVID-19, June 2020

3.

Mckinsey, Rapid pulse check into UK SME reaction to COVID-19, May 2020

4. 	https://www.lloyds.com/news-and-risk-insight/risk-reports/library/technology/squaring-risk-in-thesharing-age
5.

Lloyds customer research, June 2020

6.

https://www.infosecurity-magazine.com/news/cyberattacks-up-37-over-past-month/

7. 	https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/insurance/ey-nextwave-insurancelarge-commercial-reinsurance.pdf
8.

https://www.swissre.com/dam/jcr:c37eb0e4-c0b9-4a9f-9954-3d0bb4339bfd/sigma2_2019_en.pdf

9.

https://www.sifma.org/wp-content/uploads/2019/09/2019-Capital-Markets-Fact-Book-SIFMA.pdf

10. 	https://blogs.imf.org/2020/05/20/tracking-the-9-trillion-global-fiscal-support-to-fight-covid-19/

The insurance response to COVID-19

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