Manage top risks actively and collaboratively
Top risks are hazards with immense potential for damage and are at the top of the risk list. Some of these risks require joint solutions between the state and the insurance industry in order to provide sustainable protection for the economy and society.
In 2020, the coronavirus pandemic introduced a scenario that had previously been unthinkable for large sections of the population: A virus spread around the world in a very short time, causing great human suffering and paralysing large parts of the economy due to the government intervention deemed necessary. In addition to a pandemic, there are other hazards that are classified as ‘top risks,’ i.e. risks with low probability of occurrence but enormous potential for damage.
As part of a national analysis (2020), the Federal Office for Civil Protection (FOCP) defined the greatest risks for Switzerland – including earthquakes and pandemics. In addition to personal injury, both scenarios can lead to immense economic and non-material damage to the economy and society. Authorities estimate the return period for the onset of a pandemic to be 30 to 100 years, and for a severe, damaging earthquake 50 to 150 years. Large-scale cyberattacks or protracted electricity shortages also have the potential to cause major damage. Although specific insurance solutions exist do exist and earthquakes at least are considered to be very well insurable, comprehensive and nationwide cover has so far been lacking.
Insurability criteria only partially met
Many top risks share the fact that one or more of the insurability criteria (contingency, predictability, independence/diversifiability, knowledge of maximum claims, risk appetite of the insurance industry) are not met or only partially met. This often means that certain top risks are not, or not fully, insurable in the private sector. However, for such risks to be covered, you need the right legal and regulatory framework and also cooperation with the state. That is why politicians, industry, the general public and insurers have a great common interest in debating top risks, finding solutions and proactively implementing them – true to the motto that ‘prevention is better than a cure.’ The principle of subsidiarity must always be respected in this. This means that insurability must first be strengthened before turning to the state as a last resort.
Different forms of collaboration make sense
For the top risks, solutions must be found – in addition to comprehensive risk management and broad-based prevention – in order to support those affected in the event of a claim. The concept of a public-private partnership can help.
The role of the state varies from risk to risk. The top risks differ both in terms of loss potential and insurability criteria. This is why there is no one-size-fits-all solution that can be applied to all the top risks.
Public-private partnership as a holistic solution
The Swiss Insurance Association (SIA) is convinced that cooperation between the federal government and the private sector in the form of a public-private partnership is the best way to proactively counter certain top risks. The insurance industry has extensive experience in identifying risks and assessing their probability of occurrence and extent of damage. It can also play an important role in communication and awareness-raising and bring its expertise, infrastructure and customer relationships to this kind of collaboration.
Human resources, extensive expertise and well-established procedures are crucial for the claims process in particular. This is the only way to process claims within a short period of time. Established mechanisms also enable a targeted determination of entitlement.
