Briefing: How bad could coronavirus claims get for insurers?

By content director Saxon East 

It’s the biggest economic catastrophe in 100 years. As airlines go bust, high street chains collapse and unemployment reaches epic proportions, the world is at risk of an economic meltdown. 

Heated conversations in boardrooms centre on the very survival of companies. 

Millions of people wonder how they can feed their families, let alone eventually pay their bills and mortgage.

Netflix has never had it so good as a young generation of furloughed staff in lockdown draw temporary relief from crawling up the walls with boredom. 

And for insurers? So far the biggest casualty has been the dividend. 

And despite the dwindling of share prices - a natural reaction as investors dump equities for safe haven assets - insurers and brokers have held up well.

But there are dangers out there, and potentially some real monsters. 

As Insurance Times reports today, lawmakers in the US are considering forcing retroactive policy changes to cover coronavirus BI claims, while others are challeniging the damage trigger. 

A retroactive policy change to cover coronavirus could be devastating, leaving US insurers and some Lloyd’s players exposed. 

Marcos Alvarez, an analyst at MorningStar, says: ”Because the number of potential claims under such hypothetical retroactive changes would be extraordinarily high in the current environment, we estimate that this would have a material adverse impact on the capitalization of the industry globally, and it could cause a liquidity crunch for some companies facing an unexpected surge in BI losses.”

Reinsuers would kick back hard against paying for uncovered coronavirus claims, aggravating the problem, leading to the government having to backstop it. 

It would also push up future premiums on pandemic cover to the point of unaffordablity. 

In a nutshell, the law of untended consequences would kick in to devastating effect. 

Barring this nightmare scenario, insurers are holding up well. 

Allianz, Europe’s largest insurance company by market capitalisation, has a mere €600m in claims. 

Berenberg estimates only €200m for business interruption, €200m for event cancellation and €200m for trade credit.

The actual current exposure to coronavirus is so small because insurers have exclusions written into contracts, learning from the last virus outbreak, SARS.

The insurers with looser policy wordings will face challenges in courts, so there remains a risk for the sloppy.

Other risks are fires, theft, damage and vandalism to unoccupied properties surging in numbers during the forthcoming recession. 

On personal lines, although motor frequency is down, there is increased claims severity from a Coronavirus-hit supply chain. 

On liability, the threat of more D&O claims looms. 

Overall, the exposure is quite manageable. 

This explains why insurers are still mulling the dividend. 

It’s a public relations gift to critics, but the cash is there.

Aviva, Direct Line and Hiscox may have scrapped it, but Allianz and Talanx said they plan to go ahead. AXA remains on the fence, waiting on regulatory clarity.

The mere fact that insurers have such capacity to pay dividends amid the greatest crisis of our lives, proves one clear thing.

Critics may snipe at insurance for being boring, untrusted and unloved, but it sure is resilient.