Building insurance solutions for extreme risks creates the "illusion" of security and certainty, according to Zurich Insurance Group AG's top risk officer.

For situations like a global pandemic that triggers nationwide lockdowns, only governments can attempt to cover them as best they can, Peter Giger, Zurich's group chief risk officer, said in an interview. Creating an insurance solution for such a risk "gives you the illusion of a certainty that you cannot have, that the world just does not offer," Giger said.

In the quest for stability during the COVID-19 pandemic, government support allowed companies to survive that would otherwise have failed, Geiger said.

"In the good old days, a crisis would wash out the weak of the market," the executive said. "Not this time."

Insurance is designed to take the premiums of the many to pay for the losses of the few, but that breaks down when entire countries are suffering losses at the same time. Insurers typically deem such systemic risks uninsurable and exclude them from policies.

But there is not always a clear divide between what is insurable and what is not. This is particularly true with cyberrisk, Giger said, where there are some "very insurable" elements but many others that cannot be covered. The Zurich executive has yet to see a way to separate those components.

"I would love to have a convincing answer because there is a significant business opportunity on the insurable part," Giger said.

Sharing the load

Partnerships between the insurance industry and governments may be one answer to the risks the insurance industry feels it cannot bear alone. Carolina Klint, risk management leader for continental Europe at global broker Marsh LLC, said such systems would rely on significant government support but would "acknowledge a role for the insurance sector and the insurance buyers."

Progress on public-private partnerships has been "quite slow," in part because governments had been preoccupied with tackling the pandemic. But it is "inevitable" that those partnerships will eventually be forged, Klint said in an interview.

Environmental concerns took the top three slots in the rankings of the most severe global risks over the next 10 years in the World Economic Forum's latest Global Risks Report. Climate action failure was the biggest concern, followed by extreme weather and biodiversity loss.

Klint said the insurance industry's influence in mitigating climate change should not be underestimated. "No bank will finance something that is not properly insured, and that is the lever for the insurance industry," Klint said.

Environmental concerns deserved the top spot, ahead of social and digital risks, said Geiger.

"We can have perfect social inclusion and perfect cyber security," he said. "If we ruin the planet on the way, we've all lost."