The COVID-19 pandemic has caused severe levels of disruption to economies around the world and has affected businesses of all sizes—and the insurance industry has been caught in the middle of the chaos.

Executive Summary

Insurers that wish to continue in the good books of their policyholders will have to come up with ways to address losses caused by pandemics, even when there is no physical damage to the relevant business or its inventory. Parametric methods provide ways to address the problem, writes Inder-Jeet Gujral, CEO of Machine Cover, which creates parametric products for covering pandemic risks and others. Here, he describes a dual-trigger mechanism he believes is workable for pandemics.

As governments ordered huge swathes of the economy to close down in response to the pandemic, many companies believed the drop in revenue would be covered by their business interruption (BI) insurance. However, they have learned a bitter lesson that the BI as defined in their policies generally did not include the kinds of losses that the pandemic caused. This has left business owners furious and has triggered lawsuits around the world from companies that believe the insurance industry is dodging its responsibility to pay out.

The controversy has undoubtedly been extremely damaging to the insurance industry from a reputational point of view.

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