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Finity sees merit in government-backed pandemic cover

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A government-back insurance solution for pandemic risk would have merit for a number of reasons, Finity says in a report for the Insurance Council of Australia (ICA).

Such a solution could provide predictable coverage, generate mitigation price signals, offer funding options and could allow existing insurance infrastructure to be used, it says.

“We anticipate consumers and businesses across Australia will want some form of pandemic cover in insurance policies going forward,” the consultancy says. “Long-term, the insurance industry will need to work with government to clarify its role in future pandemic events.”

ICA engaged Finity to identify insurance-related options the Government may undertake to mitigate the economic effects of pandemics, including where insurance-based mechanisms may be relevant, and the potential role of the private sector.

The paper presents four frameworks for consideration, but the consultancy was not tasked with making specific recommendations.

The frameworks start with a status quo baseline option, followed by limited arrangements similar to UK and EU action on trade credit, involving narrowly defined solutions for specific industries

Framework Three suggests a new form of business protection designed to provide a short-term limited benefit, while Framework Four involves a government-backed pandemic facility that could be similar to existing terrorism pools.

Finity says the paper provides a basis for discussion, with further investigation and modelling and public policy decisions required before any path could be chosen as the best way forward.

“This issue is not one that can be easily solved, and it does require quite a bit of thought and study to try and create a framework for funding these events in the future,” Finity Principal Rade Musulin told

“Some of this involves some public policy choices around what the Government wants to prioritise. There is a process that has to be gone through to arrive at the right answers.”

Finity sees no prospect for significant private sector reinsurance support for widespread pandemic coverage in the foreseeable future, and says exclusions are likely to be tightened.

“Any insurance solution for pandemic will require government support to fill the financing gap created by the absence of reinsurance support,” it says.

The study includes an examination of options also being considered in the US, the UK and Europe.

The paper is available here.