Lloyd’s is mulling applying its innovation discount for underwriters supporting its pioneering ReStart initiative which is aimed at providing cover for future pandemic lockdowns, The ReInsurer can reveal.

  • Aiming still for 1.1 launch but may slip
  • Cover aimed at smaller enterprises 
  • Debate on trigger, lock-down definition and aggregation 
  • Lloyd’s capacity - most likely from working party participants supplemented by reinsurance 
  • Alternative to Pandemic Re

Amidst a flurry of conversations between insurers and governments continue about establishing complicated and large public-private pandemic reinsurance partnerships (see table), Lloyd’s is looking at developing a targeted facility to provide affordable cover to small enterprises such as restaurants and pubs which could potentially even by live by 1.1.

Global pandemic initiatives…

Aegis, Ascot, Beazley, Chaucer, Cincinnati, Talbot and Munich Re are the Lloyd’s managing agents which are involved in the ReStart working party which was first revealed by The Insurer in June.

The ReInsurer understands that Lloyd’s CEO John Neal is now mulling applying the two percent innovation capital rebate for carriers that sign up to the proposed facility although no final decision has been made.

The Lloyd’s Product Innovation Facility was set up last year with more than £100mn of underwriting capacity to speed up (re)insurance product development for emerging risks, with innovating products in response to Covid-19 having been central to its function this year.

The Facility is backed by a group of 24 Lloyd’s syndicates who have together committed to nurturing a “safe space” for underwriters to experiment with new ideas in a controlled way, which balances the need for appropriate oversight with the risk of not innovating fast enough.  

As first reported by this publication, the Lloyd’s pandemic working group was set-up in June with the brief of developing potential pandemic solutions with a particular focus on UK SME businesses.

Chaired by Ascot CEO Andrew Brooks together with Lloyd’s deputy chairman and Aon’s Reinsurance Solutions Global Chairman Dominic Christian and Vicky Carter, the chairman of Guy Carpenter’s Global Capital Solutions, International, the trio have led discussions with supporting managing agents to gauge their appetite for frameworks that respond to future pandemics.

Andrew Brooks, Vicky Carter, John Neal and Dominic Christian – Lloyd's

Left to right: chair of steering group and Ascot CEO Andrew Brooks; chair of Guy Carpenter’s Global Capital Solutions, International, Vicky Carter; Lloyd’s CEO John Neal and Lloyd’s deputy chairman and Aon’s Reinsurance Solutions Global chairman Dominic Christian

The Insurer understands that the working group has developed several work streams, including legal and regulatory, policy wording and risk modelling to drive forward the initiatives.

In addition, the working group has selected the Oliver Wyman Covid-19 Pandemic Navigator in order to model the risks.

The MMC consultancy firm describes its Pandemic Navigator as a “proprietary suite of models and tools providing visibility into the next Covid-19 hotspots and delivering the most relevant, actionable insights to policymakers and business leaders as they navigate the next waves of the crisis”. 

The idea of the ReStart facility was first mooted by CEO John Neal in the early summer.

The Lloyd’s ReStart framework is a potential solution for non-damage business interruption resulting from further waves of Covid-19. 

It would give certainty of coverage initially to UK SMEs - with the focus on the “s” - by pooling limited capacity across a number of Lloyd’s market participants. 

Managing agents supporting ReStart-

ReStart is aimed in particular at supporting SMEs by providing business coverage and supporting re-opening through the pooled capacity of various Lloyd’s market participants. 

This framework should support businesses in their recovery and provide them with greater certainty of business interruption coverage, whilst protecting insurers by pooling risks.

Areas of discussion among the working party participants include whether the trigger should be parametric or indemnity based, how to model aggregation risk and also pricing. Another key feature yet to be determined is how to define lockdowns - an issue that was at the heart of the recent FCA test case.

To be affordable to smaller enterprises, the likelihood is the premium will be hundreds rather than thousands of pounds and the cover limited with a view to providing responsive, short term cash flow.

At the same time of announcing plans for ReStart, Lloyd’s also unveiled other potential frameworks such as Black Swan Re.

Recover Re is a suggested government-backed vehicle offering long term ‘after the event’ cover that could insure against Covid-19 as well as future pandemic risks while Black Swan Re is a government-backed vehicle to insure against future systemic risks. 

The solutions and frameworks have been developed in conjunction with Lloyd’s UK and Global Advisory Groups and set out to address short, medium and long-term challenges customers face as they begin to recover and reopen following the outbreak of Covid-19.

Lloyd’s did not respond to a request to comment at the time of publication. 

 

 

The ReInsurer Comment:

Lloyd’s is not known for retail/SME insurance so ReStart is an interesting step into new markets.

However, it should be applauded for investing time into a potential product where there is a clear social need. It also comes against a backdrop of much more ambitious, joint venture initiatives which – in reality – are going to take a long time to come to fruition (if at all).

The industry has been heavily criticised for its defensive stance over SME BI Covid -19 claims in many countries, including the UK If Neal and the Lloyd’s market succeeds in developing a private market solution then it deserves plaudits and shows the industry can also be nimble-footed in responding to disasters. But much needs to be done if ReStart can go live by 1.1…