Legal Focus: Pandemic will create a buoyant market for insurers

The beginning of this month saw the withdrawal of free Covid-19 tests for many living in England.

Those seeking to test will now have to pay for lateral flow and PCR tests alike, absent certain specific criteria being met (including working in high-risk settings such as care homes and prisons and being admitted as a hospital patient). On one hand, this may feel like a turning point in the pandemic; a tacit signal that times are changing and there is no justification for the continued funding of nationwide testing.

However, in the same week, UK Covid-19 cases soared, with rates as high as one in 13 being reported in England by the Office for National Statistics; the highest seen throughout the pandemic. Thankfully, the number of deaths and hospitalisations remain lower than we have seen in previous times.

The decision to end free Covid-19 testing is a policy that perhaps reflects an acceptance that the nation will continue to live with Covid, rather than defeat it.

This is not particularly novel – it has been nearly 10 months since restrictions were lifted for the number of people attending gatherings, and the government returned to “Plan A” in January 2022, which saw the end of guidance for people to work from home, among other returns to “normality”. Perhaps most significantly, legal requirements to isolate following a positive Covid-19 test ended on March 24, 2022 – there may be no clearer indication that “life goes on” with Covid-19, in stark contrast to where we were last year.

In the commercial context, government financial support for businesses – as well as for individuals – is now significantly reduced. Furlough schemes, government-backed insurance and certain tax breaks in connection with Covid-19-related losses have ceased, or will do so this year, and the schemes that are still available are considerably more limited than before – for example, the cash grants of up to £6,000, introduced in January 2022, are available for businesses in the hospitality, leisure and accommodation sector only.

Disruption

The end of government restrictions amid high case numbers, therefore, presages a potentially uneasy period ahead.

Even in the absence of a legal requirement to isolate in the case of a positive Covid diagnosis, it is still advised and, in any event, sufferers may not be well enough to work for several days or weeks. Staff absences will continue to give rise to business disruption, without a safety net from the government for the resultant losses. Commercial insurers will undoubtedly continue to be impacted in multiple ways.

During the first week of April 2022, for example, easyJet cancelled more than 300 flights because of Covid-related staff absences, in conjunction with an increased demand for travel following the lifting of restrictions. Flights being grounded, and travel plans being disrupted, as a result of continued Covid-19 instances will carry the usual repercussions of cancelled holidays and stranded travellers, with customers and businesses alike seeking to lean on cancellation insurance.

While these claims would likely not materialise – at least to the same extent – in the absence of Covid-19 continuing to be a major factor in our daily lives, a noteworthy impact of the pandemic is the rate at which travel insurance is being sought: the first wave of Omicron saw a 53% increase in travel insurance policies, according to Squaremouth, a travel insurance comparison provider based in the US. This represents potentially significant opportunities for the market. Allianz has claimed the travel insurance market is outperforming the travel industry as a whole.

Businesses and consumers will continue to look to the insurance market for support and it follows that the demand for Covid-secure policies will remain high.

This is particularly the case where cover is needed to fill the gaps which will emerge where the government has previously provided financial assistance under bespoke Covid-related initiatives, such as the Live Events Reinsurance Scheme, brought into force last August but set to end in September 2022; or the popular (and successful) Film & TV Production Restart Scheme.

These schemes were introduced in response to many commercial insurers’ reluctance to roll the dice on the live events industry, or film and television production, at a time when the nation had been in and out of lockdowns, and it remains to be seen whether commercial insurers will step into the breach later this year. 

As ever, with high demand comes a high degree of risk, particularly given the unpredictable nature of the pandemic. The reality of continued high rates of infection among the public is that new variants will emerge, and it’s hard to predict whether those variants will be more or less severe than previous versions or if they’ll be vaccine resistant.

We expect this will create a buoyant market for insurers, particularly for those willing to grit their teeth to improve their market shares.

Felicity Maxwell is a senior associate at Mayer Brown