The insurer has been re-focusing its risk mix to prepare for any recession that follows the Covid-19 pandemic, and has already taken action that it hopes will reduce the impact of any future claims that arise as part of the anticipated economic downturn

The coronavirus has had a profound impact on the insurance industry, and right now insurers are in the high court as part of an FCA test case that will define the future of the UK business interruption market (you can follow that case live here).

But aside from the direct insurance implications, the wider implications of Covid-19 are set to create further challenges for insurers to grapple with, and many could last for years to come.

Chief among them is the looming recession that looks ready to beset UK businesses. Indeed, a number of businesses have already failed, and it looks likely that more are to follow.

This means that insurers could be faced with increased overall risks and a higher level of expected claims.

Beazley, however, is looking to side-step this risk by re-focusing its efforts into lines of business less likely to be affected by a recession.

Research from investment bank Jefferies has found that the insurer has rapidly shifted its focus away from casualty business, a line on which, alongside cyber, Beazley has relied on in recent years, in order to avoid the increase in litigation that is expected as the economy enters a recessionary period.

Instead, Beazley is focusing its capital in the catastrophe risk market to take advantage of the price increases currently being experienced as the market corrects itself following a number of large claims.

This could prove to be a shrewd move from the insurer, and something that Jefferies says is hard for other insurers to replicate as “few underwriters have the capital fungibility and operational processes to be so agile in managing the cycle”.

In its interim report for the first half of 2020, Beazley revealed that it has already increased its opening claim ratios for specialty lines and cyber and executive risk over the last few years “in preparation for a likely recession” and has been “re-underwriting the more recession prone lines of business to reduce the potential impact of future claims”.

Such action prior to the last recession meant that Beazley did not have to further increase its claims ratios once they were opened, and the insurer will be hoping for similar outcomes this time around.

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