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Lessons from COVID-19: How a science- and partnership-driven approach to risk can win the battle

If we liken the COVID-19 crisis to fighting a war, then we're confronting an invisible enemy that multiplies exponentially on the battlefield. All of our lives have been changed in the last weeks and some of us have even lost family members, friends or colleagues.

Some people have called this event a "black swan" – the concept of something that cannot be predicted from Nassim Taleb's famous book. But it isn't a black swan. Pandemics have always existed and will probably always exist, and sometimes a virus more dangerous than others will emerge. They regularly do, as in the famous Spanish flu of 1918, or other severe flus in the 1950s (Asian flu) and 1960s (Hong Kong flu) of the last century which killed millions of people worldwide. With our lives that have generally become much safer, we tend to forget that we basically do not yet have a "miracle cure" for new viruses, but still rely on the same method which was used a hundred years ago: the development of a vaccine, which is a slow and difficult process, with no success guarantees.

Many people and organizations knew that. In the re/insurance industry, for example, we have analysed the pandemic threat in a systematic, scientific way and integrated it in our risk assessments, including our pandemic models.

Thirteen years ago, I co-authored a position paper on influenza pandemics together with our incoming Board member Joachim Oechslin and other Chief Risk Officers from the insurance industry. We looked at the circumstances under which the 1918 Spanish flu broke out and asked what the impact would be if a global influenza pandemic happened again in our times.

Some of the predictions we made in 2007 sound almost prophetic today:

  • We concluded that the spread of a pandemic would be faster than in 1918 because of the increase in travel between major cities in Asia – considered the most likely birthplace of a pandemic virus – and other regions. The rapid spread could also hamper timely preventative measures.
  • Some business sectors – tourism, aviation – would be affected more than others.
  • The re/insurance industry would see the impact on both sides of its balance sheet: liabilities will increase due to a rise in claims, and asset values are likely to fall due to a market (over)reaction.
  • Lower interest rates would be expected, along with expansive monetary policies of central banks.

At the time, the study was our attempt to warn of a potential risk that we can predict and prepare for. I believe that such a scientific approach should inform policy and government action as much as it does our own risk assessments.

The re/insurance industry specialises in analysing plausible threats based on objective, scientific data. We can model pandemic risk. But the sheer scale of a global pandemic and the correlations associated with the risk limit how much our industry can contribute financially.

A workable solution would be a pandemic pool, a pre-agreed risk-sharing arrangement between the public sector and the re/insurance industry to cover losses from a global pandemic like COVID-19. Similar schemes have been tried and tested for less predictable threats like flood and terrorism risk. A public-private pandemic pool would not only give customers clarity about what is or isn't covered, but also provide protection at an affordable price which insurers would otherwise not be able to offer.

I'm convinced that such a collaborative approach would greatly strengthen society's resilience in crises like the current pandemic, and I am pleased to say that Swiss Re is actively engaged in discussing such plans with public policy representatives in several countries.

Our efforts include partnering with developing countries to help strengthen their healthcare systems, so that they too have adequate response mechanisms in place. A virus doesn't respect borders and our global connectedness puts us collectively at risk if we don't all have the necessary tools to fight it. Our interconnectedness also means that key supply chains are vulnerable to disruption when an outbreak occurs. As we've learned in this pandemic, we need to diversify manufacturing sources of personal protective equipment and other medical gear to avoid essential product shortages.

The most fundamental lesson, however, is that we can save lives if we use reason and science to help predict and track expected outcomes – whether that's to better prepare for future disasters or just for the next phase of this one. The re/insurance industry has the expert knowledge to model pandemics and assess the risks. But we need to act now so our next battle against an invisible but predictable enemy is fought with decisions based on scientific data and not denial, delay and populist measures.