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UK actuary flags idea to 'insure the uninsurable'

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An actuary with the Financial Reporting Council, a UK regulator, has suggested there may be a way for the insurance industry globally to underwrite pandemics, wars and other uninsurable risks as well as black swan events.

Richard Hartigan says his plan involves doing away with the default exclusions for such perils and in exchange for underwriting the risks, insurers are “legally permitted to pay out less than a 100% of each claim” when such a loss event occurs.

“I’m not saying that the insurer must offer a policy with no exclusion,” Mr Hartigan told the Actuaries Summit last week. “I’m saying they may offer a policy of no exclusions as one element of their library of policies that they may or may not offer.

“Of course to do that, there must be some quid pro quo for the insurer and what I propose ... is that if a collective event loss is large enough [then] the insurer is legally permitted to pay out less than 100% of each claim.

“Now how we achieve this is a matter of discussion or debate.”

He says one way for his idea to work is through “robust policy and language” so that insureds “know that occasionally if a very large collective loss event occurs, the insurer will pay out less than 100% of their claims.”

Mr Hartigan says legislation may also be needed to make his plan workable.

He says the recent court disputes in the UK over business interruption claims for pandemic-related losses got him thinking about what could be done to avoid such legal fights in future.

“This is an idea to create a sensible trade-off to achieve a higher good, a higher good that is acceptable to all three parties, the insured, the insurer and the government,” Mr Hartigan said.

“The alterative of course for many perils that would otherwise be excluded is that no cover at all is offered.

“So it seems to be there is low downside to this idea if we can get the mechanics working.”

He says it’s not a good outcome for society if insurance is viewed as a “low value” product.

“Maybe put yourself in an insured’s shoes and work out how you would feel if the insurance you purchased did not respond,” Mr Hartigan said. “Naturally you’d feel or view insurance as a poor value product and that poor value, or view of insurance as poor value, serves neither the insurer nor the government.

“Clearly it does not serve the insured either. We see unfortunately after every catastrophe, large numbers of people have no insurance and they are left with very limited ability to rebuild their balance sheets when their house is swept away or their business is interrupted,” Mr Hartigan said.

He says that by sharing his idea at the summit, he hopes to get ideas and contributions to improve it further.