The Coronavirus pandemic, the financial crisis, and nationwide riots and looting – if you are involved in the insurance business, then may God have mercy on your soul! It has been a rough first half of the year for the industry. If the current developments persist over the next several months, firms hope they can write off 2020 as one of those anomalies that will hopefully be swept into the dust bins of history.
The U.S. was largely unimpacted by the Coronavirus outbreak until toward the end of the first quarter. Many industries felt the most significant effects of the public health crisis in the second quarter, and with fresh data in their hands, the experts are ringing the old doomsday alarm. The insurance business is warning about unprecedented and historical losses this year that could decimate many firms, particularly the smaller entities.
The CEO of one of the world’s largest insurers recently told analysts on a conference call that COVID-19 would lead to the single biggest loss in the industry’s history. Evan Greenberg, the chief executive of Chubb, stated the virus outbreak would have a massive impact on his company’s global commercial property and casualty insurance business.
Greenberg pointed to a problem that so many other firms – large and small – face: political pressure. Because they wish to be viewed as benevolent and compassionate creatures, the politicians are pushing the sector to cover claims from businesses that have suffered from the bureaucrats’ overreaction and mishandling to the nursing-home epidemic. For critics of the industry, this might seem like a reasonable request, but pandemics and viruses are mostly excluded in policies. Not only would this cost the industry a greater amount of money than it does now, but it would also produce a precedent. “We’re in an unprecedented moment of historic proportions,” he said.
“It would damage or destroy the insurance industry in a terrible way. It would simply take money from one to give to another.”
In the end, how much red ink would drown the insurance sector? The estimates vary, but Lloyd’s of London forecasts in its broader economic assessment report that underwriting losses could top $107 billion this year. Its COVID-19 claims could total $4.3 billion in the first half of 2020 alone. That said, the dollar-figure could balloon to more than $200 billion if you factor in the $96 billion loss in investment portfolios.
And these prognostications came before America started to burn from the rioting and looting.
Across the U.S., rioters have smashed store windows, stolen merchandise, and set public and private property on fire. What is worse is these delinquents have also assaulted small business owners who have tried to protect their livelihoods, which will also inevitably trigger more health insurance claims.
It might be too early to project just how much the insurance industry is expected to pay out in the aftermath of the riots and looting that have recently engulfed the nation. Unlike the virus outbreak, riots and civil commotion are generally covered in business insurance, which means companies could be faced with multi-billion-dollar losses from the destruction that has taken place.
The American Property Casualty Insurance Association (APCIA) recently issued a statement in the wake of the violent acts:
“Physical damage to homes, businesses, and vehicles resulting from the current unrest will be generally covered by insurance policies unless there are specific exclusions or additional coverage requirements. Anyone with damage, call the insurance company and turn in a claim quickly. That gets the wheels rolling.”
In general, riot and civil disorder might come with a $100 million risk for the typical insurance company. But when you add several larger national and international corporations with losses of about $100 million each to the mix, the red ink adds up. It could create a “catastrophe” within the industry, notes Verisk’s Property Claims Service head Tom Johansmeyer.
One of the major concerns for the insurance industry is that the current rioting could produce future riots, something that may mirror the financial losses seen in Chile last year from the national civil unrest. In the South American country, there were protests in Santiago over an increase in subway fares. Within days, the demonstrations ballooned into a movement against President Sebastian Piñera and his administration. The peaceful demonstrations metastasized into widespread rioting that caused insured losses of approximately $2 billion. One-third of that originated from large retailers’ property claims.
In every crisis, there is an opportunity to explore. The larger the calamity, the better the prospect could be for those who can see it. In the future, when everything has calmed down and returned to some semblance of normalcy, the industry could establish insurance policies that cover pandemics with limits and exclusions. As the health authorities anticipate both a second wave and a future outbreak of another virus, businesses could start issuing life, health, and casualty coverage. The question is: Would there be enough demand for the sector to consider such products?
Read more from Andrew Moran.