Briefing: Insurers need to prepare for the economic and social fallout from Covid-19

Barring a second wave, the UK appears to be finally coming out the other side of the Covid-19 pandemic, but the worst of the economic impact could be still to come.

Indeed, Euler Hermes chairman Wilfred Verstrarte recently wrote to the company’s 66,000 clients saying “the disastrous economic consequences of Covid-19 are still in front of us and we must be realistic about what they entail”.

And the trade credit insurer has predicted that global GDP will contract by 4.7% in 2020, followed by growth of 4.8% in 2021.

Meanwhile, global insolvencies are expected to increase by more than a third by 2021, and global trade volumes to contract by 15% by the end of 2020.

The pandemic has already put increased pressure on global supply chains, and this is only set to be exacerbated by the rise in near-shoring that is following in the wake of Covid-19.

The UK, too, has its own pressures, with Brexit still not sorted and further economic strain looming on the horizon.

This is bad news for insurers, with less businesses meaning less businesses to insure, and less business growth meaning less scope for businesses to have a need for increased levels of insurance.

The personal lines market is also getting hit hard, with growth in the motor and home insurance markets naturally driven by increased consumer spending, rather than recessions.

All of this is also leading to increased societal pressure, and research from Aon has found that three in five developed economies face the potential of strikes, riots and civil unrest in 2020.

In addition, Aon’s 2020 Risk Maps Report also found that nearly half of all countries face some degree of terrorism risk in 2020, an increase on last year and representative of a more widespread threat of terrorism, motivated by a range of different extremist ideologies and causes, and particularly a rise in extreme right-wing attacks that have doubled globally in the last three years.

This not only creates an economic landscape not supportive of growth and development, but it also increases the risks facing insureds and that is not good for insurers’ bottom lines.

Ultimately, insurers will need to evolve and adapt to overcome these challenges and create new products and services that will help them thrive in the new normal that is emerging post-Covid-19.

Read more…Brightside’s Derek Henry on the future of personal lines

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