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The travel industry can now protect itself from the next pandemic

The World Health Organisation has warned the world must prepare for future health emergencies.

Businesses and industries can now insure themselves against a future pandemic.

Australia’s travel and tourism industry can now prepare for future pandemics and health emergencies and protect itself from a reliance on government funding to keep itself afloat.

A new parametric insurance product designed to cover against losses incurred from any future virus or disease outbreaks has been launched in Australia specifically designed to protect businesses and industries from financial catastrophe.

Insurance broker Lockton, in partnership with global reinsurance and risk-solutions provider Munich RE has introduced Australia’s first parametric insurance product which will be triggered when the World Health Organisation declares a future pandemic has occurred.

Payouts can be used to fund financial loss from ticket sales including cushioning against refunds, commission losses and repayments, staff salaries, entitlements and retention, debt principal and interest repayments, business operational costs such as rent and other losses unique to individual businesses.

The World Health Organisation has warned against future pandemics.

Lockton Tourism and Travel Manager, Rebecca Fleming, said it is likely government support for a future pandemic may not be as forthcoming or available to the same level as it was for COVID-19.

“With no pandemic insurance protection available during COVID-19, the travel and tourism industry was at the mercy of Government handouts, many which had to be fought for at every turn by the industry’s premier associations,” Fleming said.

While it seems the COVID-19 pandemic is well and truly in the rear view mirror, the World Health Organisation has already warned the world must prepare for the next pandemic.

Furthermore, independent risk modelling agency Metabiota has predicted it is possible a future pandemic will be the same or greater magnitude as COVID-19.

Each year, around 200 epidemic outbreaks and five new emerging infectious diseases are reported around the world, exacerbated by modern societal factors such as urbanisation, deforestation and indeed, greater levels of global travel.

Lockton said government rescue may not be as forthcoming in a future pandemic.

According to Lockton, many people incorrectly refer to major disease outbreaks as ‘Black Swan’ events, whereas modelling by scientists and epidemiologists suggest these to increase both in frequency and severity.

What is parametric insurance?

Traditional insurance policies indemnify the policyholder for an actual loss incurred from an insured event. Loss adjustment and claims pay-out may be a lengthy process.

By contrast, parametric insurance pays an agreed amount upon the occurrence of pre-defined parameters relating to a particular exposure.

When the pre-defined parameters are met or exceeded, the policy is triggered, and payment is swiftly made following a declaration of economic damage.

The solution combines the parametric trigger design with an express claims settlement based on the economic impact felt by the insured.

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Written by: Matt Lennon
Published: 2 June 2023

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