ABAC-APFF Roundtable on PPPs in Pandemic Risk Transfer
Last April 20, the APEC Business Advisory Council (ABAC), Asia Pacific Financial Forum (APFF), and the APEC Disaster Risk Financing and Insurance (DRFI) Solutions Working Group, in collaboration with Munich Re, ABAC Philippines and Globe Telecom, organized a virtual roundtable on Enhancing the Region’s Resilience through PPPs in Pandemic Risk Transfer.
“Our priority remains pandemic recovery, so ABAC will continue to explore innovative solutions for addressing future pandemic by developing an epidemic risk market platform through pilot transactions with APEC economies,” said Joanne de Asis of ABAC Philippines and co-chair of ABAC Finance and Economics Working Group (FEWG). “This initiative will hopefully set the tone for a broader stakeholder engagement that will help us develop specific recommendations around pandemic risk transfer to APEC Leaders and Finance Ministers this year.”
Taking stock from the learnings from catastrophe bonds where ABAC Philippines through the ABAC Taskforce on Disaster Recovery Planning and Risk Management explored best practices on disaster risk insurance models and schemes. Last year, ABAC worked on expanding disaster risk financing by tapping capital markets such as through insurance-linked securities, including catastrophe bonds.
Like disasters, the frequency and severity of epidemic has been on a rise in recent years, especially over the last six decades. On average, there are 200 epidemic outbreaks and five emerging infectious diseases reported annually. The estimated financial impact of previous pandemics ranges from single-digit US$ billion to more than US$10 trillion for COVID-19 and rising.
For ABAC FEWG Chair Hiroshi Nakaso of ABAC Japan, COVID-19 has caused the second largest global recession in recent history, major disruptions in the financial markets and supply chains, and contributed significantly to the ongoing energy and food crises. “As the world begins to resume cross-border business activity, it is important that we are not caught unprepared by the next outbreak, Nakaso added. “Thus, we need to closer public-private partnership to help meet the challenge of providing adequate insurance against future pandemic risks.”
With the frequency and severity of outbreaks constantly increasing, better risk management solutions are required in the future. With traditional insurance techniques pandemic risk cannot be absorbed, mainly due to accumulation risk: limited capacity available in comparison to massive needs of indemnity. However, major challenges for market development are: availability of capacity (for the supply side), and affordability due to the expected frequency of events (for the demand side).
The roundtable highlights the following recommendations:
- Pioneer a PPP framework for pandemic risk transfer in the form of an Epidemic Risk Markets Platform that enables economic and societal resilience against future epidemics and pandemics. APEC economies can support scaling up by: (1) providing insurance capacity at market rate, (2) providing contingent lending at market rate, (3) incentivizing other stakeholders to participate in risk transfer transactions, and (4) tailoring access to government capacity to specific sectors
- Implement the full value chain of the Epidemic Risk Markets platform via pilot transactions with member economies or specific sectors, with provision for scaling up the solution through public sector support to the desired level.
- Incorporate PPP framework in pandemic risk transfer in the work program of APEC DRFI Solutions Working Group.