Lloyd’s of London offers to insure NHS for unexpected costs such as pandemic

The head of Lloyd’s of London has offered to strike a world-first deal with the UK government to help the NHS meet unexpected increases in costs triggered by major events such as another pandemic.

John Neal, who runs the world’s largest insurance market, where 76 firms operate, floated the possibility of providing bespoke insurance contracts to the struggling health service, as well as government cover for floods or droughts caused by the climate crisis, when he met the chancellor, Jeremy Hunt, for the first time last month.

“One of the challenges the government has is around peak demand in the NHS relative to NHS budgets,” said the Lloyd’s of London’s chair, Bruce Carnegie-Brown.

“If we can provide an insurance solution that effectively funded the NHS if it breaches its capacity, or budget issues, then it would show the insurance industry responding in a positive way to something that was caused by an exogenous event,” he said. “Obviously things like a pandemic might cause very dramatic increases in demand on the NHS and its resources.”

Such a deal would be a world first for the UK, which unlike some other countries relies heavily on a public system where most healthcare costs are covered by the taxpayer.

However, wider concerns about the creeping privatisation of the NHS could be a stumbling block to a deal, particularly at a time when the government is in dispute with medical staff over pay.

Carnegie-Brown acknowledged that historically it had been difficult to get the government to partner with the private sector because of a “level of mistrust on both sides”. However, he highlighted some public-private partnerships, including for terrorism claims for large buildings in the UK.

A health deal could help to avoid unexpected costs for taxpayers. According to the British Medical Association, the government was forced to spend £97bn to cover the NHS Covid-19 response up to September 2021, on top of its regular NHS budget. It has also pledged a further £9.6bn for Covid-19 funding between 2022 and 2025, including for vaccines and antiviral treatments.

It is unclear what type of cover would be provided, though Lloyd’s could offer products such as insurance-linked securities, which allow insurers to transfer some of the risk to external investors.

“How we would structure it is yet to be determined,” said Carnegie-Brown. “And clearly, to the extent that you are specific about the risks you are protecting, then the insurance becomes more affordable.”

He added: “It’s about understanding what the government’s risk parameters are around these kinds of issues, and historically the government has borne 100% of the risks. What we’re saying is that the private sector could take a share of this risk, but we would need to explore the precise terms on which we did that.”

Carnegie-Brown said the government had been receptive to the insurance market’s proposal. “We’re glad that they are listening and open to exploring the opportunity.”

The Treasury downplayed the idea. A government spokesperson said: “While we appreciate the important role the insurance sector plays in building resilience to future risks, it generally does not represent good value for money for central government to purchase commercial insurance.

“The government is committed to strengthening our own systems and capabilities that support our collective resilience against systemic risks.”

Lloyd’s said it would continue to work with both the public and private sector to discuss the value insurance can add to protecting against risk. It has also offered services towards the UK’s climate transition plans, as the frequency and severity of storms and flooding caused by the climate crisis increases.

“Again, a bit like the NHS, the government owns all of the risk today if there is an extraordinary event. We think the insurance industry can be a partner with government in reducing the elements of risk,” Carnegie-Brown said, noting that insurance is there to provide for unexpected loss. “It doesn’t work if the losses are expected and the premiums become too expensive … we want the government to be proactive about that rather than reactive.”

He called on the government to invest more in long-term infrastructure projects to build resilience against climate breakdown.