Risk Sharing Mechanisms To Mitigate The Financial Consequences Of Pandemic Risk: Economic And Social Insurance Solutions For The UK

The pandemic is causing business interruption (BI) across UK businesses, resulting in unprecedently widespread and global economic losses that are too large to be absorbed in full by the insurance industry. Yet, businesses are unlikely to obtain credit for trading without access to adequate BI insurance. As the government steps in to protect businesses, the burden for taxpayers is rising exponentially. This study will develop a novel risk-sharing mechanism to effectively share pandemic BI risk between UK businesses, insurers and government. We will conduct action research; a method where we work with partners to define the problem, act upon it, and embed actions in future learning. We have partnerships agreed with UK business, insurance industry and government stakeholders to develop a BI risk-sharing mechanism. We will evaluate and build upon short-term post-lockdown products being generated by insurers and develop new solutions with this full range of stakeholders. This will enable delivery of a sustainable longer-term governance and funding solution for supporting UK business against interruption from current and future pandemic. Our research team is perfectly equipped as we have studied risk-sharing mechanisms globally for catastrophic disasters, with our results influencing policy and practice. Our research process and policy recommendations will (i) segment pandemic BI risk into core (must-have) and additional (good-to-have) cover elements; (ii) identify who (business, insurance, or Government) should take which elements; (iii) propose a public-private governance and funding solution that combines different strategic responses to sharing BI risk elements across UK businesses, insurance industry and government stakeholders.