The leader of the insurance market has proposed the notion of providing the government with individualized coverage for floods and droughts.
The CEO of Lloyd’s of London has made an offer to the government of the United Kingdom to negotiate a contract that would be a first in the world in order to assist the National Health Service in meeting unforeseen spikes in expenses that could be caused by big events such as another epidemic.
When he met the chancellor, Jeremy Hunt, for the first time last month, John Neal, who runs the world’s largest insurance market, where 76 firms operate, brought up the possibility of providing bespoke insurance contracts to the struggling health service. He also brought up the possibility of providing government cover for floods or droughts caused by the climate crisis. Both of these ideas were discussed during their meeting.
“One of the challenges the government has is around peak demand in the NHS relative to NHS budgets,” said the chair of Lloyd’s of London, Bruce Carnegie-Brown.
“If we can provide an insurance solution that effectively funded the NHS if it breaches its capacity, or budget issues,” he said, “then it would show the insurance industry responding in a positive way to something that was caused by an exogenous event.” “If we can provide an insurance solution that effectively funded the NHS if it breaches its capacity, or budget issues,” he said. “It is obvious that events such as a pandemic could result in very significant increases in the demand placed on the NHS and its resources.”
For the United Kingdom, which, in contrast to some other nations, relies significantly on a public healthcare system in which the majority of healthcare costs are funded by taxpayers, this kind of contract would be a world first.
However, broader concerns about the gradual privatization of the NHS could be a stumbling barrier to an agreement, which is particularly pertinent at a time when the government is in a dispute with medical personnel about pay.
Carnegie-Brown stated that throughout history it had been difficult to convince the government to cooperate with the private sector because there was a “level of mistrust on both sides.” Nevertheless, he brought attention to a few public-private collaborations, one of which was for the purpose of addressing terrorist claims for huge structures in the UK.
A compromise on health care might help the government avoid incurring unanticipated costs. According to the British Medical Association, the government has been compelled to spend an additional £97 billion on top of its usual NHS budget in order to cover the cost of the NHS Covid-19 response up until September 2021. In addition, it has promised to provide an additional £9.6 billion to Covid-19 funding between the years 2022 and 2025. This money will be used, for example, to develop vaccines and antiviral therapies.
It is not clear what kind of coverage will be offered, but Lloyd’s might potentially sell products like insurance-linked securities, which enable insurance companies to offload some of their risk onto third-party investors.
Carnegie-Brown stated that “how we would structure it is yet to be determined,” indicating that this is still up in the air. “And obviously, if you are specific about the risks that you are protecting yourself from, then the insurance becomes more affordable,”
In addition to this, he said, “It’s about understanding what the government’s risk parameters are around these kinds of issues, and historically, the government has borne 100% of the risks.” What we are trying to imply is that the private sector might be willing to assume some of this risk, but in order for that to happen, we will need to investigate the specific terms involved.
Carnegie-Brown stated that the government had a positive attitude toward the suggestion made by the insurance sector. We are happy to see that they are paying attention and are willing to investigate the possibility.
The Treasury Department was dismissive of the concept. “While we recognize the important role that the insurance sector plays in building resilience to future risks, it does not, in general, represent good value for money for central government to purchase commercial insurance,” a spokeswoman for the government said.
“The government is dedicated to enhancing our own capabilities and systems that will support our collective resilience against systemic risks,”
Lloyd’s of London stated that it would continue to collaborate with organizations from both the public and commercial sector to discuss the value that insurance can offer to the process of risk mitigation. As the frequency and intensity of storms and flooding caused by the climate crisis continues to increase, it has also volunteered its services in support of the transition plans being developed by the United Kingdom.
Again, in a manner analogous to that of the NHS, the government is responsible for bearing the entirety of the risk in the event of an extraordinary occurrence. “We think the insurance industry can be a partner with the government in reducing the elements of risk,” Carnegie-Brown said, stressing that insurance is there to cover for unforeseen loss. “We think the insurance industry can be a partner with the government in reducing the elements of risk.” “It won’t work if the losses are forecasted and the premiums are raised to an unaffordable level… We want the government to take a preventative approach rather than a reactive one regarding this matter.
He urged the government to put more money into long-term infrastructure projects in order to increase the country’s resistance to the effects of climate change.
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