How parametric insurance is building organisational resilience for the next pandemic

More pandemics will occur

Every year there are on average 200 epidemic outbreaks and five new emerging infectious diseases reported.

Many people still incorrectly refer to major disease outbreaks as Black Swan events. This categorisation ignores the scientific evidence and recent history. In fact, scientists and modelling agencies expect major disease outbreaks to increase in frequency and severity.

Large-scale outbreaks are not rare. It is estimated up to 827,000 unknown viruses can infect humans. One family of viruses that is concerning to scientists are coronaviruses. Already three have emerged within 17 years of each other that have caused outbreaks of severe respiratory illness (SARS, MERS & COVID-19).

Major contributors to catastrophic disease outbreaks

  • Deforestation: increasing animal and human contact.

  • Urbanisation: densely populated urban centres.

  • Greater global mobility: significant rise in global travel.

Parametric insurance solutions help organisations build resilience

  • Providing financial protection to manage economic damage and “survive” the pandemic – government support is not immediate or guaranteed.

  • Enabling quick access to funds to finance crisis management responses, adjust business operations, save jobs and outperform peers.

  • Promoting ESG: managing social responsibilities and fiduciary obligations to stakeholders.

Quick access to funding

Quick access to funding not only helps corporates to outperform peers, but also to support, keep safe and retain critical staff.

  • Enhance reputation and boost customer confidence by minimising the deterioration of service levels and product standards.

  • Access to funding empowers corporates to develop new methods of delivering on their obligations.

  • Continuous operation in a stressed operating environment improves customer satisfaction and strengthens relationships.

What is parametric insurance?

Traditional insurance policies indemnify the policyholder for an actual loss incurred from an insured event. Loss adjustment and claims pay-out may be a lengthy process.

By contrast, parametric insurance pays an agreed amount upon the occurrence of pre-defined parameters relating to a particular exposure.

When the pre-defined parameters are met or exceeded, the policy is triggered and payment is swiftly made following a declaration of economic damage e.g. submitting a signed statement without further loss adjustment.

The solution combines the parametric trigger design with an express claims settlement based on the economic impact felt by the insured.

Access our full parametric insurance solutions guide here. (opens a new window)

Case study example: travel and tourism

From film and entertainment to national sporting bodies and hospitals, the parametric pandemic solution is available to a wide range of industries including travel and tourism.

Situation and motivation:

During large-scale infectious disease outbreaks, like COVID-19, the travel and tourism industry are highly exposed to economic damage. Once the world returns to “normal” there are still considerable extra hidden costs to fund.

Potential intervention and outcomes:

The insurance payout can be used for any of the following scenarios:

  • Financial loss cover

The income from ticket sales, cruise and tour bookings and accommodation are at risk.

  • Managing the workload

Access funds to pay staff. When income stops and there are no new bookings, customer enquiries and demands increase exponentially.

  • Employee retention

Retaining critical staff is vital for a swift return to normal after an outbreak. Selected salaries, or additional benefits (e.g. sick leave) are valid covered costs that build resilience into your operation.

  • Debt interest repayments

The monthly interest repayments due to banks or other creditors.

  • Premises cover

Landlords may not accommodate continued rent reductions. Unlocking funds to retain your premises prevents reputation damage and reduces client churn.

  • Extra expenses and unique loss scenarios cover

Other extra expenses or unique loss scenarios to your business may be discussed and included in cover. We understand one size does not fit all.

  • Small limit – big impact

Outperform your peers. Access to insurance that will pay-out quickly not only assists in surviving a catastrophic disease outbreak event, but allows businesses to rapidly adjust operations to minimise additional financial loss and reputational damage.

Delivered in partnership with Munich Re: Lockton’s partner for epidemic and pandemic risk transfer

Munich Re is one of the world’s top providers of reinsurance, primary insurance, and insurance-related risk solutions.

Expressions of interest

To see whether this product is a fit for your organisation, fill out this form (opens a new window) and we'll be in touch.

How parametric insurance is building organisational resilience for the next pandemic. (opens a new window)
Lockton Pandemic Parametric Insurance