Pandemics – The insurance protection gap

Pandemics – The insurance protection gap

Learn what steps management can take to best safeguard their organisation in the absence of any commercial insurance protection.

Jonathan Barnes

Manager, Advisory

KPMG in Bermuda


Related content

man looking at tablet

The World Health Organization pronounced the novel coronavirus COVID-19 outbreak as a “pandemic” on the 11th March 2020. Coronavirus is the latest in a string of viruses, such as the Severe Acute Respiratory Syndrome (“SARS”) and Zika, to impact the globe. SARS caused an economic toll of close to $40 billion, and there are many who fear the coronavirus could exceed this.

Insurers have taken steps to ensure their exposure to pandemic risk is adequately managed. Some insurers have included endorsements within policies to place sub-limits for pandemic risk, while others have excluded the risk in its entirety. The argument from insurers is that if pandemic risk was included within policies, the cost would not be commercially viable for clients.

For a business, pandemic risk can be very complex and have a significant impact on operations. Whether considering the health of staff, risk to the supply chain, or business interruption impacts, such as event cancellation, there is a significant burden on management to understand and mitigate the risk as best as possible.

This raises the question of how management can best safeguard their business in the absence of any commercial insurance protection.

In short there isn’t a simple pre-packaged solution, however there are a variety of stages that can offer management a degree of comfort:

  1. Complete a review of existing policy documents to determine if the business has any existing pandemic risk coverage and nuances surrounding these, such as sub-limits, deductibles or limitations to coverage.
  2. Model loss data from previous pandemics and health emergencies to gain a detailed perspective of the potential impact. This approach will enable management to build a forward-looking strategy to their pandemic risk.
  3. Complete a benchmarking exercise to compare your business model to that of your competitors. This could include a review of their strategies and approach to managing pandemic risk.

Once management have a thorough understanding of the current program and the potential approaches available to mitigate pandemic risk action can then be taken to protect the business moving forward.

If the insurance coverage isn’t enough for the risk presented a business has two primary options:

  1. Self-insurance - The company takes risk onto their own balance sheet. This is the cheapest option as there are no start up fees or charges, however when a loss is experienced the company are 100% responsible. All funds held to pay insurance losses must also be reported for tax purposes annually.
  2. Captive insurance - A captive is an insurance company that insures, and is controlled by, its owners. It’s an alternative to self-insurance, whereby the captive owner will use its own capital to manage the risk transfer arrangements outside of the commercial insurance market. Unlike self-insurance, a captive can purchase third-party reinsurance to protect against risk beyond its risk appetite.

If you would like to discuss further, please contact Jonathan Barnes.

© 2021 KPMG, a group of Bermuda limited liability companies and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today