2020 has been a divisive year in the global insurance industry. Insurers involved in such lines as personal auto liability have enjoyed record profits, as drivers remain at home, while those bearing business interruption risk have angered many of their customers and fear irrelevancy.
The COVID pandemic has predominantly hit insurers balance sheets in two ways: COVID-related claims and a broad decrease in asset values. Canceled events, unpaid invoices and other pandemic-related claims have so far resulted in $7 billion in announced payouts. Investment assets, as credit ratings fall, have declined in value, which has also increased insurers’ required capital reserves.
A third hit to insurers could come from claims associated with litigation. Already there have been at least 677 cases in the US brought against insurers regarding business interruption insurance alone. In the US these cases have favored insurers, but in France and Germany judges have sided with claimants. Some insurers could also be responsible for legal costs and payouts incurred by clients.
Total 2020 property & casualty (“P&C”) losses are estimated to reach about $203 billion, compared with anticipated total written premiums of $1.6 trillion. Insurers’ solvency ratios have fallen from an average of ~200% to ~150%-190%, and reinsurers’ solvency ratios are still above 200%. As a whole since March, the industry raised over $100 billion in new debt and equity capital. Insurance industry participants’ immediate financial stability looks sound.
The industry’s longer-term outlook is murkier. Businesses which have lost court cases, lack coverage against intangible risks, and want protection from large-scale events like the COVID pandemic are questioning the current value proposition of insurers. Various public-private risk sharing systems have been proposed in an attempt to redistribute risk for future crises. Another result of this backlash against the insurance industry could be greater responsiveness to businesses’ insurance needs and demand. Incumbent insurers or new players may further develop specialized policies for intangible risks such as supply chain snags or brand reputation. Those who do not adapt to the changing landscape will lose out to their more creative competitors.
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