Bernard Goyder and Christie Smythe
PathogenRX was a parametric insurance policy for businesses developed by the brokerage firm along with Munich Re and tech firm Metabiota more than two years ago. The product was intended to provide business interruption coverage in the event of a pandemic.
Speaking to Insurance Insider, Peter Lacovara, analytics and alternative risks leader at Marsh, said that before the coronavirus epidemic, “a variety of clients, particularly those in the sports, entertainment, hospitality and gaming segments, considered purchasing PathogenRX coverage”.
Although demand for the product has skyrocketed in recent weeks following the outbreak of Covid-19, that was not the case prior to the disease’s appearance.
“Ultimately, none of those policies were bound pre-event", Lacovara said.
Failure of the product to catch on before coronavirus struck suggests a lack of foresight in risk management planning by corporations regarding the possible impacts of a pandemic. Noting that a homeowner can’t insure a house against fire when it’s on fire, Munich Re is now excluding coronavirus from pandemic policies it is quoting, Lacovara explained.
As interest in the type of product surges, Marsh is now looking for new capacity to write standalone pandemic coverage.
“We are actively seeking additional markets to quota share the product,” he said. “There is more demand than you can imagine.”
A wave of business interruption insurance claims is expected as the deepening crisis takes a toll on the global economy, with businesses in several countries shuttered and mandatory quarantines and curfews imposed. But many claims in that “avalanche” are not likely to be covered by existing policies, one insurance coverage lawyer said.
Policyholders may have property insurance that could pay out amidst the coronavirus outbreak, particularly if the business is ordered closed by authorities or if a property is exposed to an infection. However, cover for loss of business related to fear of the disease is less certain.
Coronavirus claims to specialty and commercial insurance policies that cover non-damage business interruption will fall into treaty reinsurance arrangements if losses are significant.
Munich Re, Swiss Re and modelling company AIR also advised the World Bank on its 2017 cat bond placement, designed to fund the World Health Organization costs in developing countries in a pandemic.
Sister publication Trading Risk reported last month that the insurance-linked securities were trading at around half their face value.
One obstacle in trying to sell pandemic coverage in the past was that it was a relatively expensive add-on for risk managers, a market source said.
Each PathogenRX policy is written bespoke based on a parametric trigger of number of deaths. The product was structured with assistance from the Silicon Valley epidemiology start-up Metabiota.
Lacovara said the policy “uses the mortality or infection triggers that exist in the life reinsurance market”.
A Munich Re spokesperson said: ‘PathogenRX is not a Munich Re product, but the name/brand Marsh uses to market epidemic risk insurance to clients. Munich Re operates independently, but continues to work closely with Marsh, Metabiota and other key participants in the industry to develop both parametric and indemnity solutions.”
The spokesperson added: “The primary challenge for any single insurance group remains the management of accumulation risk, as theoretically, every epidemic could develop into a global pandemic. Munich Re is developing standard solutions in order to encourage greater market participation by both the insurance industry and capital markets so as to overcome the limitations of accumulation risk on a single balance sheet.”
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