Property & Casualty Insurance and Covid-19

Current estimates (from various sources) of the cost to the worldwide P&C insurance industry range between US$80bn - US$100bn. To put this into context, the cost of the World Trade Centre event was US$40bn and the insured costs of Hurricane Katrina (according to Swiss Re) was US$80bn.

We have yet to realise the full impact of Covid-19 on the economy let alone the insurance industry, but we want to give clients a few pointers on how the industry could be affected and what this means for you in the future especially for Property & Casualty (P&C) market.

Claims resulting from Covid-19 will certainly be made under the following types of policy.

• Event Cancellation and Contingency (The Olympics alone are estimated at US$2.6bn)
• Business Interruption (in some cases)
• Management Liability (D&O and Employment Practices Liability)
• Workers’ Compensation / Employees’ Compensation
• Directors' & Officers' Liability
• Medical Malpractice
• General Liability
• Product Liability
• Trade Credit
• Travel
• Cargo
• Surety

On the positive side for insurers, it is logical that regular claims activity will reduce given the slowdown in activity.

Apart from insurance claims, what other impacts will there be? The effect will likely be felt like a combination of international and domestic factors.

Conditions in the international insurance markets affect Singapore as increased reinsurance (insurance for the insurers) pricing is passed on to the ultimate client. Reinsurers are likely to increase prices to recover claims paid and, as the industry routinely pays more in claims than it earns in premium, pricing could increase sharply especially as these claims were unexpected.

Premium is often based on a measure of a client’s business size which can be turnover, wage roll, exports, shipments or suchlike. Many clients will report reduced business size which will result in reduced premium amounts. Insurers will most likely increase their premium rates to achieve their required premium levels. Of course, some clients will cease business altogether further reducing the premium pool.

Finally, history indicates that a recession, especially where unemployment increases sharply, results in increased crime which in turn produces increased insurance claims. This will put further pressure on insurers to increase premium pricing.

All of this will be happening when companies are under severe cost pressure, so what can you do to minimize premium increases? The simple answer is to work closely with your insurers and brokers. Start well ahead of renewal and provide as much information as possible. As your broker, we need to persuade insurers that your risk is where they should allocate their capacity so we need to present it in the best possible light. You should highlight risk management and risk mitigation measures and have survey reports and suchlike available. If there have been claims, provide full information and details on how risk improvements have been made following the claim.

Consider higher deductibles and scaling back policy wordings. You may be tempted to consider reducing limits of indemnity, but we suggest this should be as a last resort. Insurers are likely to give greater discounts for a higher deductible than a lower limit of indemnity.

As with most things in life, the trick is to be prepared. We are here to work with you and to help you minimize the negative effect on your business of a hardening insurance market.