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Law360, London (June 9, 2021, 3:52 PM BST) —
A senior director at the European Commission has urged caution over plans for a bloc-wide scheme to provide insurance for businesses forced to shut by pandemics in the future, warning that the costs of such a project should be carefully evaluated.
John Berrigan, director general for the department for financial stability and capital markets, told insurers on Tuesday that the COVID-19 crisis had already cost governments across Europe an “unprecedented” amount of money.
But insurers say the private sector cannot be expected to provide pandemic insurance for crises in the future and have called for public-private partnerships to share the risk. Industry figures in the U.K. have drawn up plans for a program similar to the domestic terrorism reinsurer, Pool Re, but the government has not commented on the possibility that it might be adopted.
“I want to urge some caution here when we’re looking at the feasibility of any type of action at the [European Union] level,” Berrigan told a webinar hosted by a trade body, Insurance Europe.
“The costs and benefits of insurance coverage mechanisms, which would require large financing by member states and possibly also a direct role for the EU, should be evaluated very carefully,” Berrigan added. “Especially in light of the unprecedented fiscal costs of the measures put in place to manage the COVID-19 crisis so far.”
In the absence of state support, insurers have introduced sweeping pandemic exclusions to new business policies, a “protection gap” that company bosses have described as a failure of the market.
Berrigan said the possibility of such a pandemic insurance scheme would also depend on the willingness of the insurance sector as a whole to take on some risk.
The comments echo those of the European Insurance and Occupational Pensions Authority, which said in July 2020 that potential solutions relied on insurers having “skin in the game.” But the watchdog said three months later that it was working on “shared resilience solutions” for future pandemics, saying that economic recovery in Europe relied in part on the ability to insure against similar crises.
–Editing by Ed Harris.
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