Addressing the protection gap for pandemic risk, 23 March 2021

 

Remarks by Angel Gurría, OECD Secretary-General

Transcript of video message
Paris, 23 March 2021

Dear Mr. Piccolomini, distinguished colleagues,

Welcome to today’s discussion on "Addressing the Protection Gap for Pandemic Risk". For many of the catastrophes that affect our lives – including COVID-19, floods, earthquakes and terrorism attacks – the insurance sector helps us understand and protect ourselves from risks. As we begin to recover from COVID-19, the time is ripe to discuss the challenges of insuring pandemic-related risks and possible solutions through public private collaboration.

The COVID-19 pandemic has devastated our societies and economies, claiming over 2 million lives to date and reversing much of the economic progress made since the 2008 Financial Crisis. Today, over 45 million workers are unemployed across the OECD and 2020’s global GDP is estimated to have fallen by nearly 3½ per cent – equivalent to around USD 6 trillion in relative lost output. Global growth is projected to average nearly 5% per annum over 2021-2022, but output in many countries is projected to remain below pre crisis projections in late 2022, especially in fast-growing developing countries like India and Indonesia.

COVID-19 hurt businesses particularly hard. Our estimates show that each month of strict confinement resulted in approximately USD 1.7 trillion in lost business revenues across OECD countries, with severe impacts on accommodation, food, arts, entertainment and the recreation sectors.

The majority of losses are not – and are unlikely to be – covered by the insurance sector alone. Insurance is designed to protect the few who face losses in a given year with the premiums of the many who don’t – not to protect everyone from the same global peril at the same time.

Instead, governments in OECD countries offered unprecedented financial support to businesses and their employees through wage subsidies, tax deferrals and guarantees. While this support mitigated the economic impacts of COVID-19, it has come at a heavy cost to public finances. We estimate that debt-to-GDP ratios in OECD countries will be approximately 20% of GDP higher at the end of 2022, than they were in 2019. In many economies, government debt as a share of GDP will reach its highest level in decades.
Looking ahead, governments will need to continue protecting society’s most vulnerable, including many small businesses that have closed their doors indefinitely. But when it comes to future pandemics, they can’t go it alone – the insurance sector also needs to be more active in being part of a solution.

The insurance sector is innovative: for example, it has helped to develop catastrophe models that are helping insurers and reinsurers manage and reduce their financial exposure. And we urgently need the insurance sector’s support to develop tools and expertise that will help us better manage future pandemic risk, while reducing demands on government finances.

Our discussions today will shine the spotlight on loss-sharing arrangements for future pandemics. These arrangements – public-private partnerships – between governments and the insurance sector, which aim to deliver affordable insurance coverage for extreme risks, are nothing new.

About half of OECD countries have some form of catastrophe risk insurance programme designed to share the burden of flood, earthquake or terrorism losses across the insurance sector, and often with government. And such programmes will be central to the management of future pandemics. In today’s discussions, we will learn how loss-sharing arrangements have been designed and implemented in different countries, and evaluate lessons learned.

Dear Friends,

No one knows when we will face the next major challenge. We don’t know if it will be a once in a lifetime catastrophe, or if another pandemic is just around the corner. But one thing is clear. The insurance sector has a key role to play in reducing uncertainty and supporting businesses when another pandemic hits. And it is critical that they have “skin in the game” in any initiative.

The OECD wants to work with you to be ready, should this happen. I wish you all very fruitful discussions.

Thank you.

 

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