Insurers count mounting costs of pandemic claims

Singapore

INSURERS are facing mounting costs from the raging Covid-19 pandemic worldwide. Industry estimates of total claims for losses this year vary but a Lloyds of London prognosis suggests they could go as high as US$110 billion.

The syndicates that operate in Lloyds, the world's biggest insurance market, are expected to cough up as much as £5 billion (S$8.8 billion) in Covid-19 insurance payouts in 2020, having already paid out £2.4 billion for the first half year. The claims are from 16 different insurance sectors, which mostly relate to event cancellations, but also include medical negligence, travel cancellations and business interruption policies.

The actual bill for 2020 for non-life insurers could go even higher as these predictions were made prior to a second and larger wave of infections that have, in quick succession, forced governments in France, Germany, Belgium and the UK into a second lockdown.

Munich Re recently warned of Covid-19-related losses totalling about 800 million euros (S$1.3 billion) in reinsurance for the third quarter. The losses were attributable to various business lines, such as insurance for major events and other property-casualty lines, and the life and health business. More information will be provided in its quarterly results update on Nov 5. Munich Re incurred some 1.5 billion euros in Covid-19-related losses in the first two quarters of 2020.

Swiss Re reported a net loss of US$1.1 billion for the first half year after booking claims and reserves related to Covid-19 of US$2.5 billion.

Allianz Global Corporate & Specialty (AGCS), a unit of Allianz Group, has reserved some 488 million euros this year for Covid-19-related claims, mostly from the entertainment industry. "The pandemic is certainly one of the worst loss events for the insurance industry in history," Thomas Sepp, chief claims officer at AGCS, said in a recent update.

The movie and television industries have been decimated, with productions interrupted or delayed while cinemas were shut in the initial lockdowns.

Hollywood blockbusters like No Time To Die, Black Widow, West Side Story and Top Gun: Maverick were all supposed to premier in 2020 but have now been postponed to 2021.

Covid-19 has resulted in the cancellation of live events and sporting fixtures, as well as the closure of theatres, cinemas and theme parks.

"Many film production crews, studios and media services providers have to stop their productions as larger gatherings are forbidden in many countries at the moment," AGCS regional head of claims for Asia-Pacific, Volker Ziegs, told The Business Times.

AGCS provides global production and film insurance which protects the producers, filmmakers, crew production gear and all the filming locations against unforeseen incidents that potentially cause postponement or stop of a film production.

The cancellation or postponement of events and productions is one of the largest sources of Covid-19 related losses for the global insurance industry, bringing a surge in claims. Unlike traditional lines of insurance, entertainment policies typically provide cover for infectious diseases.

Asia-Pacific has generally done a better job at containing the virus spread; pandemic claims in the region, likewise, are also much lower.

"We see a significantly lower number of Covid-19 related claims in the region compared to the US or the UK. In Asia-Pacific, we have had fewer than 100 Covid-19 related claims, with the bulk coming from our entertainment line of business as a result of event cancellation followed by property, said Mr Ziegs.

In contrast, AGCS has received thousands of Covid-19 related claims from the entertainment sector in the US and UK.

It may be counter-intuitive but although aviation is one of the hardest hit - with numerous national airlines needing state bailouts - claims in the sector have been benign.

Most businesses outside the entertainment industry may have policies on business interruption but these typically don't cover interruptions from infectious diseases.

"In a small number of liability notifications, passengers have sued airlines for cancellations or disruptions. Slip and fall accidents at airports - traditionally one of the most frequent causes of aviation claims - have declined with the massive reduction in global air traffic, which fell by a record 94 per cent year-on-year in April 2020," said AGCS.

While Covid-19 claims are potentially massive, the sum is not outlandishly high for the insurance industry. To put into perspective, it is comparable to the insured loss bill from hurricanes Harvey, Irma and Maria in 2017.