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Law360, London (February 23, 2021, 5:26 PM GMT ) Insurers said on Tuesday that they are ready to discuss plans with the U.K. government for creating a state-backed pandemic reinsurance scheme to tackle what some see as a growing "market failure" in the availability of cover.
Nick Kitchen, who sits on a working group set up by the Association of British Insurers to look at the possibility of such a scheme, told a conference that the group is waiting to hear from government officials about discussing proposals.
The government has faced mounting pressure to establish some form of levy-funded body to provide subsidized insurance cover to businesses for pandemics in the future, as many insurers have introduced sweeping disease exclusions to policies.
"A lot of exclusionary language has gone into policies and the protection gap is now wider," Kitchen told the ABI annual conference, referring to economic losses not covered by insurance.
"We need to get stakeholders around the table to look at how we can protect against this or some other systemic event happening in the future," said Kitchen, who is also a director at insurer RSA. "We'd like to speak to the government, but we're waiting on them."
A spokesperson for HM Treasury did not immediately respond to a request for comment.
Paula Jarzabkowski, a professor of strategic management at City, University of London, said it is inevitable that some form of pandemic reinsurer is established.
"We are going to see some sort of pandemic re partnership, but we're not going to see it for this pandemic," Jarzabkowski told the virtual conference. "This is not the sort of risk that can sit solely in the market."
The ABI has taken a cautious line on calls for a pandemic reinsurer. It has said there has to be "genuine market failure" to justify the cost for the sector of creating a pool of funds to subsidize payments on claims.
Julian Enoizi, chief executive of state-backed terrorism reinsurer Pool Re, said on Tuesday that the lack of availability of cover constituted a failure in the sector.
"It seems to me that the industry is categorically and systematically applying exclusions to pandemic or human communicable disease," he said. "In my simple world, that amounts to a market failure. It's a failure by our market to find a solution to the current problem."
A separate committee under Pool Re was established in 2020 to examine the possibility that a reinsurer could cover the pandemic and other so-called systemic risks.
--Editing by Joe Millis.
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