COVID-19 presents a stern test for the insurance industry

COVID-19 RESOURCE HUB | Financier Worldwide

INSURANCE & REINSURANCE SECTOR

Though the COVID-19 crisis has unfolded at different speeds across jurisdictions, insurers the world over – from general insurers to health insurers to business continuity insurers and beyond – have been flooded with inquiries from increasingly desperate customers.

The scale of the financial downturn and its impact on companies will create many challenges for insurers, one of the most pressing of which is how to respond to the increasing demands on staff and ensuring that business continuity is maintained.

To minimise disruption to their own business, insurers will need adequate, up to date crisis management policies, and the ability to execute them successfully. Insurers that invested heavily in technology solutions in recent years may be in a better position than their competitors to adapt to the ‘new normal’.

Of course, the most important concern for any insurer or reinsurer or is to protect the health and safety of its own employees. One priority will be to ensure employees can work remotely and safely, and have the support they need. Given the additional reliance on technology, cyber security and network defences may need to be reviewed and strengthened. Claims adjusters and other employees who may be required to undertake site visits will need to follow clear social distancing policies.

Aside from the logistical challenges of conducting business throughout the pandemic, there will be significant financial implications for insurers and reinsurers.

The risk to the global economy is substantial. The Insurance Information Institute, in its first quarter ‘Global macro outlook’, reported that “COVID-19’s impact on global growth and the insurance industry is likely deeper and wider than the current consensus and could last well into the third quarter and beyond”. Global GDP growth in 2020 could slow by as much as 1 percent, from 3.3 percent to 2.3 percent, making a 2021 recovery unlikely, according the report.

Regulators have taken steps to ease pressure on the insurance industry. In March, the European Insurance and Occupational Pensions Authority (EIOPA) suggested that national supervisors should be flexible about the timing of reporting and public disclosures relating to the end of 2019 period. In the short term, the authority also intends to limit requests for information and consultations with the industry.

Further, the EIOPA extended the deadline for the holistic impact assessment under the 2020 Solvency II Review by two months. Insurers and reinsurers that participate in the information request exercise now have until 1 June to submit the completed reporting templates to their national regulators.

Regarding the solvency and capital position of insurers and reinsurers, the EIOPA has not yet proposed any immediate action and says it will continue to monitor the situation. In the meantime, insurers and reinsurers are requested to “take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration”.

The pandemic and related economic decline is set to have a significant impact. Deteriorating financial conditions will trigger insurance claims across the industry, from event cancellation and business interruption to travel, health and life insurance, among others. In addition, as more companies collapse into insolvency, D&O claims will surely follow.

As the reinsurance industry provides the insurance industry with financial backing, it is critical for reinsurers to continue operations to address claims as they come in and support insurers in assessing the issues arising from the COVID-19 pandemic.

Ultimately, however, while the industry will respond to the COVID-19 era, insurance will not be a panacea to all economic problems.

Richard Summerfield