The Geneva papers on risk and insurance. Issues and practice最新文献

This article discusses business interruption insurance as a measure of spreading risk in the context of the COVID-19 pandemic. In drawing a picture of how business interruption insurance has been handled and governed to date by courts and regulators in the U.K., Australia and the U.S., the contribution is specifically concerned with providing tentative answers to two questions: first, whether the design and interpretation of business interruption policies have made it a suitable means of spreading pandemic risks for policyholders; and second, how methods of resolving disputes over pandemic-related losses could improve the position of policyholders in relation to the insurance sector.

Insurance can, as has clearly been indicated in the literature, play an important role in dealing with catastrophe risks, not only as a compensation mechanism but also as a mechanism to influence the behaviour of the insured. It is the concept known as 'insurance as governance'. However, we argue that there are limited possibilities for this role as far as the insurance of pandemics is concerned. The traditional technical tools, such as risk-based pricing, are difficult to apply. In addition, there may, ab initio, be serious problems in insuring pandemics within one of the main conditions of insurability (controlling moral hazard through an effective risk differentiation). One remedy that is traditionally applied, more particularly for natural catastrophes, is mandatory coverage. Furthermore, the capacity problem might potentially be solved through a multilayered approach in which, in addition to insurance and reinsurance, the government could also take up a role as reinsurer of last resort. That would also have the major advantage of stimulating market solution (and potentially providing incentives for the mitigation of damages), which clearly fails in a model where the government simply bails out operators. Finally, one important regulatory intervention is that insurers should be better informed than was apparently the case during the last pandemic about exactly which type of risks are covered and which are not.

The COVID-19 pandemic continues to present new challenges at the frontiers of social risk. Its significant societal impact has prompted the consideration of alternative frameworks like compensation funds to better allocate the risks and impacts of COVID-related injury. Although there has been discussion about the potential of alternative liability structures for vaccine-related injury, there has been less analysis of the right way to compensate other types of injury, such as long-term illness, disability and death, associated with the SARS-CoV-2 virus. In France, a universal compensation fund for COVID-19-related injuries, designed similarly to asbestos-related schemes, was considered by the parliament. With an eye on scientific knowledge of the best practice in the development and operation of compensation frameworks, this paper analyses the design of such funds in Europe as applied to COVID-19 injury and considers the position of compensation funds in relation to tort law, private insurance and social security models.

Pandemic-related business interruption (BI) losses are generally considered 'uninsurable' because, in order to pool sufficient premium revenue to meet valid claims, premiums would be unaffordable for the majority of policyholders. This paper explores whether and how such losses might be made insurable in the U.K. The authors consider post-pandemic governmental responses, including the role of the Financial Conduct Authority (FCA) and the meaning and implications of FCA v Arch Insurance (U.K.) Ltd ([2021] UKSC 1). The central premise of the paper is to highlight the importance of reinsurance in increasing an underwriter's insuring capacity and to illustrate how, with the support of government in the form of a public-private partnership (PPP), 'uninsurable' risks of this type may be made insurable. The authors propose a PPP, 'Pandemic Business Interruption Re', which provides, in their view, a feasible and defensible solution that would confer the benefit of increasing policyholders' faith in the industry's ability to underwrite pandemic-related BI claims and reduce reliance on ex post government aid.

The COVID-19-driven stock market crash in early 2020, as well as the recession following the financial crisis, generated sizeable operating losses for property-liability insurance companies. However, property-liability insurers were able to hold their capitalisation levels relatively stable during both recessions, issuing new capital and reducing dividends. We use these two recent recessions to empirically examine the determinants and consequences of capital issuances by property-liability insurance companies. We find that property-liability insurers raise capital to restore depleted levels due to operating losses and to fund business growth, and these determinants do not change during recessions. We further examine whether capitalisation levels constrain insurers' ability to meet demand during recessions and find no evidence this occurs. We rather find that new capital is associated with premium growth in subsequent time periods. There seem to be fewer frictions affecting property-liability insurers to recapitalise and accommodate demand compared to other financial services firms.

Supplementary information: The online version contains supplementary material available at 10.1057/s41288-022-00283-5.

In this paper we focus on model risk and risk sensitivity when addressing the insurability of cyber risk. The standard statistical approaches to assessment of insurability and potential mispricing are enhanced in several aspects involving consideration of model risk. Model risk can arise from model uncertainty and parameter uncertainty. We demonstrate how to quantify the effect of model risk in this analysis by incorporating various robust estimators for key model parameters that apply in both marginal and joint cyber risk loss process modelling. Through this analysis we are able to address the question that, to the best of our knowledge, no other study has investigated in the context of cyber risk: is model risk present in cyber risk data, and how does is it translate into premium mispricing? We believe our findings should complement existing studies seeking to explore the insurability of cyber losses.