Covid-19 could be the biggest ever UK insured claims event
By content director Saxon East
Is Covid the biggest claims event in UK insurance history? That is the question people are asking amid the fallout from the pandemic.
Hiscox revealed in its half-year results that it had upped reserving, citing Covid potentially becoming the largest UK claims event on record.
Certainly, if the insurers lose their High Court battle (and any subsequent battles) with customers, then the final claims bill will be massive.
Let’s look at five major UK claims events, starting from smallest to biggest, in recent years and see how it compares:
5) The Beast from the East - £600m
A large Arctic air mass, stretching from Russia, left Britain shivering in freezing conditions during the winter of 2018. Burst pipes and storm damage to vehicles left insurers with a £600m claims bill.
It was especially tough on some of the big motor insurers, still recovering following the costly Ogden rate change a year earlier.
4) The 2015 storms - £1.3bn
The UK was hit by a trio of storms - Desmond, Eva and Frank - during the winter of 2015/2016. The ABI estimated insured claims at £1.3bn.
The storms left more than 3,000 people needing alternative accommodation during repairs to their homes.
3) The 2007 UK floods - £3bn
Total losses were around £4bn, and insurers picked up 75% of the costs. The 2007 floods hit Scotland and England. A series of low pressure systems, and then the remains of Cyclone Uriah, caused the devastation.
In late July, Gloucestershire and Worcestershire became the latest parts of England to be inundated. Flooding left 48,000 homes without power for two days, and 10,000 motorists were stranded on the M5 overnight.
The defining image of the floods was Tewkesbury Abbey surrounded by water.
2) The Ogden rate change - £5bn
Insurers were shocked when the Lord Chancellor changed the rate to -0.75% in February 2017. This meant more costly claims, and even retrospectively reserving more for old claims, for severe injuries.
The initial cost was £5bn. However, the cost was mitigated so some degree when the figure was revised to -0.25% two years later. But even then, some insurers had reserved on the basis of a 0% revision and were left licking their wounds.
1) Covid-19 - £11bn?
The final claims bill to UK insurers could be absolutely enormous. Willils Towers Watson say it could be as high as $13.9bn for all UK insurers. The figures are based on UK insurers having to pay out business interuption claims. Hiscox believes it could turn out to be the largest ever. Some of the stories circulating are frightening.
One insurer could be on the hook for anywhere up to £300m for a small scheme signed up with a broker. A lot will depend on the outcome of the FCA court case and subsequent legal battles. Certainly, it has potential to dwarf anything people have seen in living memory.
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