17 April 2020EMEA analysis

FERMA calls for PPPs to help European businesses manage pandemic risk

The Federation of European Risk Management Associations (FERMA) has called on the European Commission to support the development of public-private partnerships (PPP) to help businesses manage the risks associated with pandemics.

FERMA said it can provide the necessary theoretical framework around organisational risk management, and share its experience of managing COVID-19 on the ground in thousands of businesses across Europe.

However, it said that because pandemics represent a systemic risk, the re/insurance industry cannot provide material amounts of risk transfer on its own.

FERMA noted that many businesses face severe losses related to COVID-19. “Insurance provides little if any cover for these risks, and insurers are introducing more exclusions and tighter conditions as policies renew,” it said. “We do not expect this to change. Pandemic risk, like climate change and cyber risk, is systemic. It is beyond the capital of the private insurance market to provide material capacity for transfer of risk.”

PPPs at the national level will be better placed to provide funding for those affected in future pandemics, FERMA added. The EU should support this by providing expertise around modelling and rate setting, and assistance with start-up costs. “There is also potential for additional EU support such as an EU backup layer, possibly via the European Stability Mechanism (ESM), allowing the convergence of all national systems to a European standard,” FERMA said.

It cited similar schemes related to terrorism and natural catastrophe, such as the French Caisse Centrale de Réassurance, Spain’s Consorcio de Compensación de Seguros and the UK’s Pool Re, as models that would be appropriate for managing pandemic risk.

The call came in a letter FERMA wrote to the European Commission, in which it argued the Commission should use the lessons from the COVID-19 pandemic to apply good risk management practices in the EU, to mitigate future pandemic events.

FERMA said it will collect feedback and experience from its member associations to share with the Commission.