Lloyd’s of London is interested in black swan insurance that would help protect against losses from unusual events:

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Commercial insurance market Lloyd’s has said insurers worldwide will pay out more than $100 billion in coronavirus-related claims this year.

But many firms are frustrated that their business interruption policies do not cover the pandemic and some in Europe and the United States are in dispute with insurers.

The Black Swan cover could be used to ensure payments after catastrophes such as a cyber attack or solar storm destroying critical infrastructure, as well as for pandemics, Lloyd’s said in a report published on Wednesday.

In The Black Swan, Nassim Nicholas Taleb defines black swan events this way:

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. (xxii)

What phenomena fall into this category? According to Taleb:

Fads, epidemics, fashion, ideas, the emergence of art genres and schools. All follow these Black Swan dynamics. (xxii)

It seems like a conundrum: how exactly to provide insurance monies for events that are unknown and unpredictable? One of the important features of the insurance industry is being able to estimate risk and possibly payouts. A black swan event makes this very difficult if not impossible. At the same time, we know black swan events are possible – even if we do not know which ones might occur or what new phenomena might arise – so having money available to address the situation seems wise.

It would be interesting to see how this plays in the court of public opinion. When crisis hits, I would guess many people want governments and large corporations to be able to respond quickly and dispatch needed monies. Yet, having a large slush fund or unlimited monies to address potential situations could strike some as problematic.