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Law360, London (May 27, 2020, 1:52 PM BST) -- European risk managers have called on the bloc's executive body to devise a new framework for insuring businesses against unforeseen disasters such as COVID-19 and climate change after the pandemic exposed serious deficiencies in the sector.
The Federation of European Risk Management Associations, a body representing the bloc's risk management professions, said Tuesday in a letter to the European Commission that the bloc should bring together private insurers and governments to respond to problems exposed by the pandemic.
The body urged the bloc to adopt a holistic approach to tackling the lack of business interruption cover for situations that do not involve physical damage, such as the coronavirus crisis.
"The spread of COVID-19 around the world, and particularly within the European Union, has revealed a systemic weakness in insurance markets," the group said in a position paper. "Although the insurance sector provides coverage for a range of unforeseen events, there is currently little to no coverage available for financial losses resulting from non-physical damage business interruption."
Insurance for disrupted business typically covers lost income after a disaster. But many businesses facing huge losses as a result of the coronavirus lockdown are unable to make a claim because there is no physical damage to stores or supply chains, as there would be after a flood or fire.
The federation is asking the commission to develop a new plan, which it calls the resilience framework for catastrophic risks, to fight such catastrophes. Other so-called systemic risks that would fall into this category include climate-related losses, terrorism and cyber-warfare.
The body wants close coordination between insurers and governments to fight these disasters.
"Due to their large-scale effects, it is beyond the capital of the private insurance market to provide material capacity for the transfer of such systemic risk," it said.
The association's president, Dirk Wegener, said the body is calling for a "holistic approach" supported by the insurance sector, national governments and EU institutions.
Wegener added that FERMA's proposed cross-sector approach would help companies ranging from "small and medium-sized enterprises facing immediate liquidity issues, to the largest transnational corporations concerned with supply chain and trade disruptions."
Insurers are at odds with companies in Britain over whether business interruption policies should cover lost earnings from March 24, when the U.K. ordered all non-essential companies to close.
Private insurers have been hit hard by the virus. Insurance giant Munich Re said this month it expects to face claims of up to €800 million ($880 million) this year from the pandemic. Its profits slipped 65% as a result.
Swiss Re said in April that it faces a $476 million hit in the first quarter of the year from claims linked to the coronavirus pandemic and a further investment loss of $300 million because of volatility in financial markets.
--Additional reporting by Martin Croucher. Editing by Ed Harris.
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