Friday, July 15, 2016

Swiss Re (Among Others), On Ebola Pandemic Insurance? Not Sure This Is A Workable Idea...

At the G7 Summit back in May, this was one of many discussions that caught my eye. [Here is the United Kingdom's fine private law firm, Dentons, on the idea -- from back in early June of 2016.] I've been waiting for a journal article on it, and now (as of July 11, 2016) that has arrived.

And as I read it over, I do applaud both the basic charitable instinct I see in this form of "insurance", as well as the innovation it embeds -- that, of looking to lay the funding risk off, into the private capital markets, around the globe. However, based on my limited readings to date, I am deeply skeptical that such a market could emerge in a way that would be stable, for the longer term.

I am willing to watch these feasibility studies continue, and the various independent experts test each others' models, but (in my view) the fundamental truth of almost every epidemic is that it BECOMES a larger epidemic because it is not possible to alleviate many routine sub-tropical (and certainly not possible to eliminate non-routine ones, like Zika or Ebola viruses), and still make a profit, in the Western-style model of public health care delivery. By definition, it will cost more than can ever be collected, in return.

If I'm right about that, I cannot see how a charitable "insurance" market will be self-sustaining, unless it is more "voluntary contribution" than "enforced premiums" driven. Based on what we saw in Ebola this last time around (2014-2016), no series of $10 million- or even $100 million-set of premiums could be expected to fund an over $5 billion ultimate liability, and certainly not more than one occurrence. I just don't think early money would make enough of a difference, except in very unusual cases (for example, where the cure is already well-known and ready to go -- i.e., not Ebola or Zika). So it will, for me, always come back to charity -- voluntary additions primarily from the US, Japan, Australia and EU and the UK. I cannot see any insurance company being able to make a market that relies on an "assumed" level of additional charity -- where, as here -- most of the "buyers" of such insurance, are also very likely going to be asked to make additional contributions. [The PEFF funding available is capped at $500 million over three years, with an additional replenishable cash window of $50 to $100 million -- seems far short of any reasonable goal amount.] But I will watch -- with a keen eye -- and hope that they are much smarter than I am.

Here is the bit -- from the Insurance Journal, do go read it all -- if you are interested in this sort of thing:

. . . .Take the Ebola virus outbreak for example.

Six months after the initial cases were reported, roughly one-third of financial pledges had been dispersed. As the crisis worsened, resource requirements grew, according to the report.

"Appeals for funds by the WHO grew from USD $4.8 million in early April 2014 at the onset of the outbreak to USD $1.5 billion by November of the same year, to roughly USD $4 billion by January 2015," the report states. "Combined with a poorly coordinated global response and lack of capacity, this left Guinea, Liberia and Sierra Leone devastated both physically (lives lost) and economically."

Nikhil da Victoria Lobo, head of global partnerships Americas for Swiss Re, said roughly $5.4 billion in appropriations came from the U.S. government following the Ebola outbreak.

"It would be far smaller for the U.S. government to put up some tens of millions of dollars. . . than to appropriate $5.4 billion after the horse has left the barn," Lobo said. . . .

True, but tens of millions won't cover $5 billion. Ever. Not even as a simple timing of funding mechanism.

We must remember that Swiss Re, and Munich Re have vested interests here -- in having yet another product to sell, and collect one-time commissions upon -- largely without regard to whether the coverage actually remains solvent, and is worth anything -- after even one event. But here's to hoping.

Hope is of course, a good thing -- perhaps the best of all things. And that hope is like the dawn, luminous and yet clear. . . smile.

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