There are a number of industry initiatives across the world to explore further public-private partnerships to provide ultimate backstop for systemic losses. Clearly there is a limit to the size of losses that private insurance capital can cover, and it is worth exploring whether an explicit public-private backstop along similar lines to Pool and Flood Re in the UK is one way of mitigating the risk of a shock to supply of insurance. But we should be mindful of the risk of moral hazard and of crowding out private capital. To return to the example of cyber risk, the industry is now able to provide explicit cyber cover for those aspects of the risk that are insurable such as recoverability, physical damage and the cost of notification of lost records. And we know there is appetite in the market to keep the insurance business model relevant and seek out alternative sources of profit by underwriting new risks. As investors in longer-term, illiquid assets, insurance companies are well suited to support the UK’s economic recovery As this audience will be well aware, the industry’s contribution to the economy goes further than transfer and pooling of physical and financial risk.
And we should expect the aggregate impact of individual firms’ decisions in a sector that at the end of 2019 held assets in the region of £ trillion – a figure broadly equivalent to UK GDP in the same year – to be an important influence on speed of recovery and adaptation. But what does the insurance sector do for the economy? If I asked the person on the street about the role of insurance, I’d expect them – once they’d raised the common complaint about insurers putting premiums up every year and telling a story about a particular claim – to speak about the protection it provides to households and businesses against the financial costs resulting  2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  from the occurrence of various risks to their physical property, health, loss of earning power or other unexpected losses. (Though maybe not using quite those words!.) This is a very important function. Efficient transfer and pooling of risk reduces aggregate risk and by freeing individuals from risk allows them to avoid reducing consumption in favour of excess saving. And it allows businesses to put capital to work in their areas of expertise and opportunity, without having to worry about – or reserve for – risks that they are not equipped to manage or diversify, and so will not be adequately rewarded for. It has particularly high value in current circumstances. Excess saving, reduced consumption, and heightened risk aversion would be detrimental to economic recovery.