Lloyd's Offers Framework for Covering Pandemics, Systemic Catastrophes

Lloyd's of London has proposed potential solutions for business interruptions resulting from government-ordered shutdowns due to pandemics or other crises, including open-source frameworks for addressing systemic catastrophic events.

The solutions and frameworks, which were outlined in a Lloyd's report titled Supporting Global Recovery and Resilience for Our Customers and Economies: The Insurance Response to COVID-19, include two frameworks that would require government/(re)insurance industry partnerships.

The Lloyd's proposals include solutions for reopening businesses against the threat of further waves of COVID-19, building greater resilience across global supply chains and the digital economy, and preparation and protection for the next systemic catastrophic event, a Lloyd's statement said.

"As the COVID-19 pandemic continues to devastate economies and communities, with impacts requiring resources that can only be accessed by governments, there remains an urgent need to protect society as it recovers and prepares for an uncertain future," the Lloyd's statement said.

Lloyd's said that if implemented, the three frameworks—ReStart, Recover Re, and Black Swan Re—could provide buyers protection from further waves of COVID-19 and other future pandemics and strengthen societal resilience against future systemic catastrophic events.

ReStart, a potential nondamage business interruption solution for future waves of COVID-19 being developed by the Lloyd's market, focuses on supporting small- and medium-sized enterprises (SMEs). The solution is focused on giving certainty of nondamage business interruption coverage initially to UK SMEs by pooling limited capacity across a number of Lloyd's market participants, Lloyd's said. The product would support SMEs reopening, offering a range of limits to ensure that it is affordable for buyers without requiring any government support.

Recover Re sets out a proposed "after the event" insurance product framework that could provide immediate relief and coverage for nondamage business interruption over the long-term, including the current COVID-19 pandemic, according to Lloyd's. If implemented, this could be an efficient way to inject commercial and government funds into the economy, Lloyd's said, providing relief to customers with limited borrowing capacity. Lloyd's said that the Recover Re framework "could be implemented in any country where the government has the resources and industry commitment to support it."

Black Swan Re is a reinsurance framework based on a government and industry partnership that Lloyd's said could better protect customers from the devastating and long-term impacts of systemic catastrophic events such as another pandemic, global supply chain disruption, or the interruption of critical infrastructure or utilities. The framework would provide reinsurance for commercial nondamage business interruption coverage for black swan events through industry pooled capital, backed by a government guarantee to pay out if the pool lacked sufficient funds.

In addition to the proposed frameworks, Lloyd's said that it is developing a Center of Excellence supported by up to £15 million in seed capital investment. The center will build resources and capabilities to better understand, model, and create products to protect insurance buyers against systemic risks, including pandemics, Lloyd's said.