ID Comment: What are the true costs of the Covid-19 pandemic?
The true cost of Covid-19 for global re/insurers could go far beyond dollars and cents
Lloyd’s has given its first dollar estimate for the cost of the Covid-19 pandemic to the market. But the true costs of the pandemic on the industry go far beyond that.
The insurance industry should be perceived as the good guy of this crisis.
Policies are paying out and the industry has continued trading despite the operational difficulties caused by lockdown.
And unlike for the banks during the global financial crisis, there is no doubt as to the solvency of insurance companies. Insureds should have no concerns on that front.
On the contrary, many are looking to insurance partners to provide protection for future pandemics, and looking again at pandemic products that, until now, have had remarkably little success in the market.
In addition, the Covid-19 pandemic has put further upward pressure on rates across many classes of business that were hardening already on the back of three significant loss years.
But there are big clouds gathering on the horizon, too. Although the industry can be expected to generate much more premium for pandemic risk, the global economic contraction will pressure premiums in many lines. Businesses that cannot sell their wares cannot buy insurance either. And in those lines where the pandemic provides a natural fillip, like motor insurance, which has seen a steep decline in claims, public pressure is pushing insurers to return part of the premium.
There are also far too many “grey area” business interruption policies, written by Hiscox and others, which have resulted in insurers and insureds disagreeing vehemently over the extent of coverage provided for Covid-19-related losses.
The UK regulator has stepped in and is bringing test cases before the courts to settle the matter and bring certainty, one way or the other.
These kinds of arguments between insureds and insurers inevitably contribute to a sentiment among the general public that insurers can slither their way out of contracts when the losses become too high. This charge is almost always unfair, but is often held by individuals who do not know the industry well.
The market is awake to the danger, while rightly committed to only paying out on fair claims. But the situation could easily worsen, and add to a perception that has, unfortunately, long dogged our industry.