How Insurance Industry Might Respond if a Pandemic Is an Act of Terror

Imagine a scenario where COVID-19 was manufactured in a lab and was released as an act of terror. Tracey Gibbons, senior vice present, Underwriting, at Third Point Re, considers this possibility during a presentation for Carrier Management’s new series of ExecTalk videos.

The effect on the global population and economy probably would have been the same, but the effect on the insurance and reinsurance markets would have been markedly different, she commented. (To view Gibbons full ExecTalk presentation, see the video embedded in this article).

“It would effectively become a terror loss and only [be] covered by carriers that have not excluded nuclear, biological, chemical and radiological, or NBCR terrorism,” Gibbons said.

While most carriers manage their NBCR limits by region, a pandemic would not respect these artificial boundaries, she added.

“This sort of scenario could open carriers up to losing multiple regional limits as the virus worked its way around the globe. I haven’t heard anyone talk about this or seen any insurers or reinsurers think about modifying the way they manage the aggregation of these exposures as a result.”

During the ExecTalk video, Gibbons discussed why COVID-19 has been a wake-up call for the industry. “Government-mandated business closures and global lockdown’s have been the real ‘black swan’ event, not the coronavirus itself,” she noted.

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While demand is rising for insurance and reinsurance protection against both the potential next wave of COVID-19 as well as those looking for coverage for the next pandemic event, capacity currently is very limited, Gibbons said.

“Our industry members have a collective reputation for having a short memory, so I suspect a combination of carriers broadening their appetite, and buyers who start thinking the likes of COVID-19 will not happen again in their lifetime, will undoubtedly lead to the market finding its equilibrium again with demand and supply matching up at a price that leaves both parties happy,” she predicted.

Other topics of discussion during Gibbons’ ExecTalk video included:

• The main challenges reinsurers face when underwriting pandemic risk.
• Re/insurers’ appetite for pandemic and other communicable disease covers.
• How the industry can write future pandemic covers that fulfill the buyers’ needs and carriers’ underwriting criteria.
• The potential problems with a government backstop for pandemic.
• Third Point Re’s response to pandemic coverage.