The Public-Private Safety Net
The pandemic has highlighted the need for public-private insurance schemes that are more widely accessible.
Risk transfer tools have played a limited role in the pandemic, reflecting the fact that pandemics are too costly – to insurers and their customers.
Carolyn Kousky, in her essay, “Catastrophic Risk Transfer in a Post-Pandemic World,” points out that there are lessons that can be learned from the risk transfer successes that have taken place during the pandemic.
The first of these is that a public backstop for losses that stress the insurance industry can be designed to facilitate private risk transfer for lower levels of losses and lead to more comprehensive coverage.
Second, parametric insurance can be effectively tailored to cover certain types of losses and for larger entities with the ability-to-pay for additional coverage.
Third, lower-income countries need additional assistance for catastrophe response and recovery. Sovereign-level insurance may be the best structure and could be expanded to include more localized public-health disasters.
As Kousky points out, however, the future is never an exact copy of the past. Thinking beyond this current virus is necessary to develop systems that can provide effective responses for the spectrum of future threats.
It will be necessary to harness the strengths of the public and private sectors to allow private risk transfer within its capabilities, and provision of public support for the private sector’s two key limitations: covering catastrophic levels of correlated losses and protecting the most vulnerable who cannot afford private protection.