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Law360, London (July 1, 2020, 2:42 PM BST ) Lloyd's of London floated three possible solutions on Wednesday for dealing with business losses caused by the COVID-19 pandemic and "systemic" losses in the future, two of which would require partnerships between insurers and the government.
Any country or insurance market could adopt the proposals as a model for dealing with the current crisis or a possible second wave, the specialist insurance market said.
The first of the three "frameworks" recommended by Lloyd's in a report published Wednesday is called ReStart. Insurers would provide so-called non-damage business interruption cover to businesses against the possibility of a second wave of the virus.
Lloyd's said that the risk to insurers is "significant" but that they could spread the risk by offering cover across several industries or countries.
The insurance market said in May that it expects the COVID-19 pandemic to cause $107 billion in global underwriting losses, with insurers seeing a further $96 billion shaved off investment results.
"Some of these risks are of a scale that require partnership with governments globally," Bruce Carnegie-Brown, Lloyd's chairman, said. "This report identifies ways in which the insurance industry could work with governments to share risk and create a braver, more resilient world."
The second proposal is Recover Re, which would provide small and midsized enterprises struggling with losses from the current pandemic with "after the event" cover. That would be backed by a government credit risk guarantee, ensuring an "efficient way to inject commercial and government funds into the economy."
The third option is described as Black Swan Re and would operate in a similar way to the government-backed terrorism reinsurer, Pool Re.
Lloyd's said the industry could pool capital to provide reinsurance for cover for commercial business interruption for "future systemic risks," with a government guarantee to pay out if the pool ever had insufficient funds to provide claims.
The model for Black Swan Re is similar to that set out in another industry proposal called Totus Re, which would act as a reinsurer for "super perils" such as devastating cyberattacks and other pandemics.
Separately, a steering committee under Pool Re is working on the creation of Pandemic Re, a project that has more than 50 executives on working groups, including former home secretary Amber Rudd.
A spokesperson for Lloyd's did not immediately respond on how its proposals tie in with the work with Pandemic Re.
Lloyd's said it is also developing a "center of excellence," which would launch with £15 million ($18.3 million) in seed capital, to help it create insurance products for systemic risks such as pandemics.
--Editing by Ed Harris.
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