Covid-19 disruption highlights importance of having insurance

The Covid-19 pandemic has taken its toll on new insurance premiums on certain lines of business, such as travel, events and life insurance. Losses as a result of lockdowns are estimated to be at $35 billion (€29.8 billion) globally and as uncertainty still lingers as to when economies can reopen, these losses will continue to rise. Lloyds of London has stated that it estimates that the losses will be higher than it originally thought, about $107billion globally when the dust finally settles.

Some product lines have remained stable, but overall the pandemic has had a devastating global effect says David Gallagher, lead underwriter at Hiscox Ireland, a specialist insurer that operates in niche sectors.

“At Hiscox, we expect to pay globally $475 million in Covid-19 related claims net of reinsurance, the majority for event cancellation and travel insurance-related claims. In Ireland event cancellation claims surged in 2020, with hundreds cancelled around the country as per government advice. We reserved significant sums for this and with lockdowns continuing in 2021, new business premiums are non-existent with all physical events cancelled or on pause until restrictions are lifted and it is safe to resume them,” Gallagher says.

The majority of product lines were hit due to Covid-19 in various forms, however, remote working has had a positive impact on employers’ liability (EL) and public liability (PL) insurance, which historically would see a very high frequency of claims activity in the Irish insurance market.

“Since March 2020, we have seen a reduction of 36 per cent in public liability and employers’ liability claim notifications, which is likely due to the reduction in economic activity and mobility over the past 12 months – in particular during the first lockdown between March and June.

“However, it is assumed that this figure is likely to return to normal volumes as the economy recovers. Indeed, we saw a gradual return to normal PL and EL notifications over the summer months as the economy essentially opened back up in full. We have seen a smaller reduction in new EL and PL claim notifications since the second lockdown was announced in October,” he says.

Threat of cyberattacks

Hiscox offer specialist cyber insurance – protection to companies that fall victim to cybercrime, which is a growing area and they are experiencing significantly more demand for this product – as the threat of cyberattacks continues to grow and evolve.

Technology is another core sector they operate in and it has performed quite well in the pandemic due to most companies relying on technology to operate remotely.

“It is still a very competitive marketplace and costs can be static here or may even reduce depending on the company’s profile and activities. Any potential increased costs will more than likely be seen in the insurance- reinsurance company negotiations where they have their agreements in place. From a commercial/consumer perspective this will vary from insurer to insurer depending on the insurer’s underwriting strategy, again depending on what sector and industries the insurer operate in,” Gallagher says.

Mark Kennedy, partner at Mazars says it is his sense that the pandemic isn't yet permanently amending the profile of individual insurance classes and that overall the sector has reacted well to the pandemic, switching to mobile working and continuing to serve clients well.

“However, sustained working in this model brings challenges and potentially is risky – a distributed environment potentially means changes to control frameworks, as well as posing a different kind of management challenge,” he says.

“The long-term impact is a little hard to determine at this point. In the shorter term many businesses will experience some cost duplication and increases. However, the longer term trends – in population behaviours, insurance events and perhaps even in interest rates may well be impacted by the pandemic,” he adds.

While Insurance Ireland does not yet have data on 2020, chief executive Moyagh Murdock says the general insurance market has been negatively affected in some areas such as business insurance and travel.

“The National Claims Information Database report on private motor insurance showed that the average premium fell 9 per cent from quarter two, 2018 to quarter four, 2019 and CSO figures show that there has been a further 6 per cent reduction since then.

“For life and pensions companies on the other hand, we would expect that overall the industry will have remained stable when compared to other years. Persistency rates generally remained static – there was low encashment and/or cancellations, for example. We also expect that group business in these sectors would be more stable than individual business. The move to remote working meant that many larger firms adapted well to the new environment and continued to operate as normal,” she says.

Remote working

Overall, both the Central Bank and the European regulator acknowledged the insurance industry’s operational resilience during the pandemic and commended the sector on its ability to move to remote working without causing material issues for consumers.

Meanwhile, Covid-19 has highlighted the need and importance of insurance for a variety of sectors and industries for multiple product lines. “Admittedly it can sometimes be viewed as a grudge purchase but can prove invaluable when situations and scenarios like this happen. The pandemic has also highlighted some challenges to the industry such as policy coverage, scope and limitations of coverage which will need to be eradicated in the future.

“The pandemic has shown that the insurance industry is resilient and despite the losses, insurance companies are still open for new business and are still paying claims for customers. With life hopefully slowly starting to return to normal and economies beginning to reopen, insurance companies will continue to play a pivotal role,” Gallagher says.