The European Insurance and Occupational Pensions Authority has suggested a pan-European pandemic insurance solution as one of a range of options to provide cover for future global disease outbreaks.
In a staff paper published July 27, EIOPA suggested designing a mechanism where the EU acts as a reinsurer, taking on risks that exceed a certain threshold at the national level.
The regulator described such a scheme as a fourth line of defense, sitting on top of insurers, reinsurers, and government-backed national schemes, and suggested it could be set up to cover a fixed percentage of a country's gross domestic product.
The downside to such a scheme, the paper said, was that it is dependent on insurers' capacity and state-level support which, "in the short term, is limited." It also said the investment risk of such an entity would correlate with the financial markets.
The pan-European scheme was one of a wide range of suggestions made in the EIOPA staff paper, along with the pros and cons of each suggestion. Other options included a national or EU pandemic funding mechanism, developing capital markets solutions, and developing a blueprint for national risk-pooling mechanisms.
The regulator made a number of suggestions relating to non-damage business interruption, or NDBI, coverage, the shortage of which has been a big issue for businesses during the current coronavirus pandemic. Among other things, EIOPA suggested providing "simple and transparent" pandemic NDBI cover, targeting NDBI products at small and midsize companies, mandating the provision of NDBI cover, and offering the cover with a parametric trigger.
EIOPA also said spending "significant effort" on improving the modeling of NDBI risks was "key" as it would help insurers price risk and quantify the benefit of any mitigation measures. On data and modeling, EIOPA suggested establishing an EU expert group for data sharing and risk modeling and using current catastrophe models to assess pandemic NDBI risks.
The regulator stressed that its suggestions do not necessarily reflect the opinions of all national regulators, and that the staff paper is not aiming to set out a specific course of action. It said it had based the paper on discussions with representatives from the insurance industry and commercial insurance buyers, including European insurer association Insurance Europe, risk managers' association FERMA, and broking group Marsh & McLennan Cos. Inc.
EIOPA is inviting views on the paper until Sept. 25.