Published Date: 4th May 2020
In the face of the Covid-19 global pandemic, the insurance industry has struggled to respond to a crisis which it was unprepared to tackle. Faced with an unprecedented challenge the industry, in Julian Enoizi’s words, ‘hasn’t bathed itself in glory’, and has been criticised for failing to act sympathetically towards customers or mobilising its vast resources to facilitate the support effort for the millions of affected people and businesses.
Specifically, as Enoizi and many other besides have pointed out, the insurance industry ‘mechanism’ was perfectly placed to support the distribution of vital funds, such as the government’s coronavirus furlough scheme to the businesses and individuals across the UK who desperately need it.
Under the scheme firms continue paying staff and can ‘claim’ back the money in the form of a grant which they currently receive in around 6 weeks. Many see the insurance industry as the ideal channel through which these funds could be channelled in the event of a future crisis, more quickly and effectively than the current system. For one, businesses are familiar with the mechanisms of business insurance. Added to which, insurers and brokers have the benefit of a direct connection to the consumer or business insured, and are often already front of mind when considering a claim.
The practicalities would be largely straightforward. The Insurance market is already well-versed in such mechanisms and typically possess the tools, skills and experience to understand the potential risks opposing them. The market has spent many years assessing claims, leveraging technology and data insights and so they would be well positioned to identify and investigate potential fraudulent activity.
That said, in a crisis such as this, the sums of money are huge. The government’s furlough scheme is expected to distribute at least £42bn, but probably more. Where there’s vast sums of money involved, there’s also the threat of fraud attempts. Although the insurance industry is by no means a stranger to fraud, becoming a channel for large-scale distribution of crisis fund would no doubt require heightened levels of due diligence to ensure that funds are distributed only to genuine applicant organisations. Strong mechanisms to positively ID applicants paired with extensive due diligence checks – PEPs, sanctions, ultimate beneficial ownership – on claimant organisations would be a must to check the legitimacy of the business owners and its structure, alongside fully digitised processes compatible with the forced remote working environment to enable electronic authentication of people and documents. Additional anti-fraud measures would safeguard processes still further, using vast data sets of online transactions from millions of devices to spot suspicious activity in the devices and IP addresses of those making the claims to determine the likelihood that an application is from a genuine business.
In light of the surprise with which this pandemic has gripped the UK, not to mention the globe, Pool Re. with the government are leading global discussions around the feasibility of a pandemic fund, similar to those that already exist in the UK for floods and around the world for other natural disasters.
Such an undertaking is not without its challenges, however. Firstly, it needs buy-in from an already insurance-fatigued public to cover yet another uninsurable risk at the cost of higher premiums for all. Added to which, to build a serviceable fund quickly enough, the scheme would need significant contributions, meaning equally significant premium hikes in the near-term.
Secondly, people may rightly ask why they’re being asked to contribute. After all, pandemic of this nature is, we’re repeatedly told, a once in a generation event. Having just about survived with the help of governmental intervention so far, the argument for a new fund specifically to protect against a future threat that might not materialise for 100 years, or ever, will be to many people rather weak. Others might argue whether those funds might not be put to better use flowing around the economy and fuelling the recovery that is a far more important to the UK in the near future.
As Enoizi points out, the government will always be insurer of necessity in some extreme circumstances – this clearly being one. But, he says, “it’s important that any future pandemic insurance fund solution avoids offloading responsibility totally onto the state. A public/private partnership should be sought to find the optimum way to share the risk of future pandemics. We need to think more innovatively about mutualisation of risk.”
We appreciate your interest.