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Zurich’s draft concept for facilitating pandemic protection

August 28, 2020
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Context and Background

• Zurich recognizes the insurance industry’s challenges in developing pandemic protection: 

– Pandemic is uninsurable and potential loss is larger than the industry can financially bear alone 

– Solution must be attractive and affordable for businesses (to allow for appropriate take-up rate)

– Solution must be transparent and reliable over the short and long term for the industry, the government, and policyholders

• Zurich’s concept addresses those challenges by leveraging the:

- Financial stability of the federal government

- Insurance industry’s local service and expertise in underwriting risks and responding to catastrophes

- Structure of an existing, financially sound, and trusted federal insurance program

• Zurich’s concept shares key element with Federal Crop public-private partnership, specifically

– Businesses voluntarily select coverage through existing brokers / agents, receive premium subsidies (based on size), and use 

indemnity payments to cover critical financial obligations 

– Carriers provide local delivery and service of the program on behalf of government with an opportunity to voluntarily bear 

risk based on carriers’ appetite (through allocation of policies into pools) 

– Federal government regulates, manages, and financially supports the program (e.g., develops the product, sets rates, bears 

risk, reimburses for operating expenses) 

As the concept is reviewed, it is important to remember that we are operating off limited facts:

• As of August, we still do not understand the full impact of COVID

• Trillions of dollars are being infused into various sectors of the U.S. economy without knowing the full effect

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Purpose and Guiding Principles

Guiding Principles

• Provide stability and predictability 

to businesses (and employees), 

ensuring they will be protected

financially during a pandemic

• Assure the U.S. economy can hit 

'pause', still take care of its people 

and be ready to hit 'play' as soon as it 

is safe, without a prolonged reboot

• Reduce and level out ad hoc 

disaster payments

Purpose

1. Insurance cannot stand in the place of what needs to be borne by the 

government – Federal government must be at the table

2. Insurers are underwriting experts and adept at bearing risk, 

however, only for finite risks

– Pandemic is uninsurable (e.g., no commercial models, 

infinite risk, unrestricted geography)

– Insurers can manage the risk by boxing it in and controlling 

exposure with predefined limits (e.g., cyber)

3. Insurers are adept at quickly and efficiently responding to 

catastrophes of all kinds

4. Solution must be attractive and affordable for businesses (in 

order to allow for appropriate take-up rate) and represent the 

primary monetary recoupment mechanism

5. Concept can be applied to various structural proposals, LOBs 

and public-private risk sharing approaches

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Summary of Zurich’s pandemic risk concept

• Customers: take-all-comers approach based on eligibility (eligibility independent of business size)

• Coverage: help protect businesses by allowing them to meet critical financial obligations (e.g., payroll, employee benefits, 

interest payment, rent, accounts payable, taxes)

• Deductibles: based on waiting days (e.g., business responsible first X days)

• Trigger: multiple / tiered, including federal emergency disaster declaration, federal disaster declaration by state, and business 

shut down declared (state level)

• Risk mitigation: provide service to incentivize customers to improve risk profile

• Claims: simple and quick claims process dependent on triggers being met; parametric in nature, but customer still required to 

self-certify losses

Value 

Proposition / 

structure

• Customers purchase through existing brokers and agents (by leveraging existing state producer licensing laws)

• Carriers providing fixed property required to offer customers coverage Distribution

• Three federal reinsurance pools (100% ceded, 95% ceded and 90% ceded)

• Carriers make policy by policy placement decisions

• No minimum placement requirements by pool / treaty (e.g. can place all business in 100% ceded pool)

• No reinsurance caps or aggregates

Reinsurance

• Premium subsidized federally and based upon policyholder selected deductible (e.g., X days)

• Rates determined at federal level and based on indexed approach (e.g., industry, region)

• Initial enrollment ASAP upon legislation being enacted (mid-term coverage can be offered); following renewals would be part of 

property program and have same date property policy incepts

Pricing / 

enrollment 

Component Description 

• Single set of rules governed at the federal levels (preemption of state insurance laws)

• Any private products regulated at federal level

• Administration and Operations (A&O) subsidized by program

Program 

administration

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Businesses

Voluntarily selects coverage and uses claim 

payments to cover obligations

Carrier

Delivers Program (mandatory participation) 

on behalf of Gov’t with opportunity to 

voluntarily bear portion of risk

Federal Government (Gov’t)

Regulates, manages, and financially 

supports the program 

Pandemic protection would be a public-private partnership 

between carriers and the federal government

Details to follow

Claims and policy servicing

Policy structure and placement

Pays premium 

(less Gov’t 

subsidies)

Forwards 

premium

Reimburses 

carrier for 

claims paid

Parametrictriggered claim 

paid

• Self-certifies losses to Gov’t 

(e.g., via tax filings)

• Uses claim payments to cover 

critical financial obligations 

(e.g., payroll, rent, taxes)

• Provides risk mitigation 

consultation and services 

(e.g., resilience planning)

• Services policies locally

• Pays and manages claims process 

through policyholder selfcertifications

• Promotes / markets the program

• Administers policies

• Allocates individual policies to 

risk pools based on appetite

• Trains independent 

agents / brokers

• Works with existing property 

broker / agent to voluntarily 

select coverage level

Pays A&O

• Pays portion of carriers’ A&O for 

claims and servicing

• Establishes framework for 

monitoring fraud, waste, and 

abuse of federal program

• Regulates and manages the 

program (e.g., rates, compliance)

• Subsidizes policyholder premiums

• Pays portion of carriers’ 

administrative and operations 

expenses (A&O) for placement

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• Carrier has sole discretion 

to allocate a given 

policyholder to any of the 

available pools based on 

risk characteristics and 

carrier risk appetite

• Risk retention determined 

by self-selected mix of 

policyholders across pools 

(carrier can utilize all pools)

• Carrier has sole discretion 

to change risk retention 

over time (e.g., pandemic 

risk is more fully 

understood, risk appetite 

changes)

Carrier’s risk retention level determined by self-selected mix of 

policyholders across pools Illustrative

Carrier allocation perspective – Example Scenario

Carrier’s existing fixed

property policy holders Carriers place individual policies into pools

Pool 1 

100% ceded

Pool 3

90% ceded

Potential decision criteria

• High exposure 

industries / geographies 

(e.g., urban retail)

• Policyholders with no pandemic 

risk mitigation procedures

• Moderate pandemic exposures 

• Less developed pandemic risk 

mitigation procedures

• Lowest exposure industries / 

geographies (e.g., remote 

professional services)

• Policyholders with well 

developed pandemic risk 

mitigation procedures

Estimated that 99% of limits would ceded to federal government.

Over 90% of carrier retained limits would be borne by carriers with > $1B policyholder surplus.

Based on modeling assumptions of carrier pool allocations and insured take-up rates

Pool 2

95% ceded

Elements of pool allocation

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External Data Sources

Two critical data sources underpin 

the micro-simulation model

Zurich worked with the Reinsurance Association of America1 to 

create a micro-simulation model to test the concept

1 The Reinsurance Association of America has not endorsed or supported Zurich’s concept and their participation should not be taken as 

an endorsement. They have provided modeling support and technical capabilities for this concept and other proposals.

Bureau of Labor Statistics

Entity expense data (payroll 

and other expenses), employee 

count and revenue 

information by state and 

industry NAICS group

NAIC Statutory Financial 

Data

Statutory policyholder surplus 

and commercial multi-peril 

market share data by insurer

Baseline Model Assumptions and Variables

Micro-simulation model has variable inputs around four key assumptions allowing cause and 

effect relationships to be adjusted based on the simulation

Product Design

• Covers 80% of expenses for three 

months, capped at $20M per month 

for employers with 500 or more 

employees

• Premium charge of 2% Rate on Line 

for < 500 employees, 3% for 500 or 

more

• 0.5% preferred risk discount for 

qualifying risk mitigation programs

Insured Buying Behavior

• Take-up rate assumptions by 

industry NAICS group (e.g. 

Accommodation and Food Services 

at 90%, Utilities at 20%)

• 30% qualify for preferred risk 

discount

Carrier Risk Retention Behavior

Pool cession assumptions by 

policyholder surplus (PHS) carrier 

bands, e.g.

• Carriers with PHS up to $100M 

would place 100% into the 100% 

ceded Pool 1

• Carriers with PHS > $1B would place 

85% in pool 1, 9% pool 2, 6% pool 3

Federal Reinsurance Design

Three reinsurance assigned risk pools

• Pool 1: 100% ceded, 25% ceding 

commission

• Pool 2: 95% ceded, 27% ceding 

commission

• Pool 3: 90% ceded, 30% ceding 

commission

Cause Assumption Effect Assumption

Event Scenario Assumptions

Event scenario simulation inputs 

allow for 

Event Assumptions

• $1.1 trillion in economic 

losses per month

• 3 month event duration

• State and industry NAICS 

groups impacted (set to all 

for baseline)

Economic Loss Allocation 

Methodology

Economic loss allocated to 

state, industry NAICS group 

and entity size based on 

wages, number of entities or 

number of employees (set to 

wages for baseline)

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Model’s baseline micro-simulation results in $1.6T insured event 

based on $3.3T in economic loss, of which $15B is born by the 

insurance industry

Over $1T, 66% of the 

insured losses are for 

entities with fewer 

than 500 employees

Federal government 

retains 99% of 

insured losses

$14B of insured losses 

retained by carriers 

with policyholder 

surplus > $1B

Top five states account 

for 42% or $661B of 

insured losses

(CA, TX, NY, FL, IL)

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