should respond to the restrictions placed on businesses as a result of covid - 19, and the sums involved have perhaps militated against either insurer or insured settling for a compromise outcome to claims. the high profile of disputes over business interruption claims has done nothing to dent the popular caricature of an industry that is happier to accept premiums than to pay claims. this matters : it could have an impact on demand for policies, if businesses perceive them not in practice to offer the cover they need – not just in business interruption, but in indemnity policies that cover non - specific perils. this in turn could create a drag on real economic activity and productive investment that cannot take place without appropriate insurance coverage. equally, there is a risk that supply will be curtailed. as a result of potentially large and unintended accumulations, insurers will naturally take actions to limit their future exposure. this could be in the form of tighter policy wordings, exclusions, withdrawal of capacity or significant price rises, reducing the availability and affordability of non - specific peril cover and creating an increasingly concentrated market. for example we know that on average, d & o ( directors ’ and officers ’ protection ) premiums have doubled this year. 1 to some extent this is of course individually sensible risk management, and it is right that insurers consider the broader lessons from recent events about the potential contract uncertainty within their portfolios, and take see financial times article ( september 2020 ) :'cost of insuring board directors from lawsuits doubles in covid era'all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice steps to reduce this. but there is a risk of excessive risk aversion and an overshoot leading to an aggregate reduction in supply that damages recovery. it is not impossible to transform a seemingly uninsurable peril into a diversifiable, insurable one. cyber risk is a helpful example. a severe, global cyber event causing systemic losses is considered uninsurable – the risk does not diversify, and the industry ’ s capital could never be sufficient. there are a number of industry initiatives across the world to explore further public - private partnerships to provide ultimate backstop for systemic losses. clearly there is a limit to the size of losses that private insurance capital can cover, and it is worth exploring whether an explicit public - private backstop along similar lines to pool and

role in the financial crisis in the current cycle, it has been argued that complexity obscured risks that were embedded in certain financial instruments and activities. so what do we mean by financial system complexity? three key aspects come to mind : • the complex financial instruments that have played such a prominent role in the current financial turmoil ; • the interactions between financial markets and institutions ; and • the speed and virulence with which problems spread across national borders. each of these elements has been important over the past two years. financial innovation saw the development of a number of complex products, from asset backed securities ( abs ), to structured credit products such as collateralised debt obligations ( cdos ) based on portfolios of abs, and cdo squareds ( cdos of abs that hold cdos as collateral ) and credit derivatives. only too late was it understood that the prices of these instruments move in a highly non linear fashion in response to falling credit quality in the tranches underlying the securities. when that began to happen, moreover, there was little or no liquidity in markets where these instruments were traded. opacity was also a problem insofar as the banking system was concerned because such instruments were often not accounted for on balance sheet but were issued indirectly through special purpose vehicles. at the same time, the activities of financial institutions became much more closely intertwined with financial markets. there was a blurring of distinctions between different types of institutions and a shift in their relative sizes within the financial system. banks moved beyond their traditional role as deposit takers and lenders to offer a much broader range of financial products, including funds management and insurance. the growth of securitisation markets ( until recently ) enabled non bank financial institutions to play a greater role in credit provision, and fostered the expansion of the so - called “ shadow banking system ”. financial institutions also became much more reliant on markets for their own risk management and funding, and in some cases found that disruptions in financial markets had a serious impact on their ability to operate. for example, in the united kingdom, northern rock ’ s heavy reliance on securitisation, and its inability to find an alternative source of funding when this market closed, was instrumental in its need for official support and subsequent nationalisation. similarly, disruptions to markets for credit default swaps, or even simple foreign currency swaps, had a significant impact on the operations of institutions that relied on these markets to hedge their exposures and manage funding