Insurers see 'manageable' impact from COVID-19, but event is far from over
Advisen
Insurers see 'manageable' impact from COVID-19, but event is far from over
By Erin Ayers, Advisen
Insurers’ first-quarter earnings reports have offered the first glimpses of the financial toll the COVID-19 pandemic will take on the industry. Thus far, losses appear to be manageable, but the impact of policy decisions regarding workers compensation and business interruption remains to be seen.
Offering an overview of the insurance and reinsurance industry, Willis Re said in a commentary that solvency, “while dented, remains robust.” While direct claims impact appears to be manageable, the firm added, the future remains challenging.
“The reserving challenges for (re) insurers — practical, operational, legal and technical — are formidable. The threat from BI is exacerbated by growing vocalism from various US state legislators seeking to revise actual coverage granted into something that they wish had been granted retroactively. This action represents an existential threat to the entire industry, never mind the consequences of unilaterally changing contract law,” said Willis Re.
Insurers Chubb and Travelers reported first-quarter earnings results this week that offered similar outlooks as Willis for their companies – and offered similar warnings for policymakers.
‘Surreal and catastrophic’
According to Chubb CEO Evan Greenberg speaking during an earnings call, the coronavirus pandemic, which has been “both surreal and catastrophic,” will be “the largest event in insurance history,” considering its impact on both assets and liabilities for insurers. Chubb reported a drop in net income for the first quarter of 2020, down to $252 million from $1.04 billion in the prior-year quarter. Chubb announced $13 million tied to the pandemic and indicated that it would track losses as “a separate ongoing catastrophe event.”
Chubb will see business interruption losses, Greenberg said, on accounts where the insurer intentionally provided coverage compared to “the vast majority where we did not.” For lawmakers to force retroactive coverage would cause “unnecessary harm,” he said.
“Lawyers and the trial bar will attempt to torture the language on standard industry forms and try to prove something exists that actually doesn't exist and try to twist the intent when the intent is very clear. And the industry will fight this tooth and nail. We will pay what we owe,” said Greenberg.
Chubb will see “meaningful” impact from COVID-19 on growth, he said, but the full revenue impact for the industry at a time when the event is still unfolding is “simply unknowable.” The event should also emphasize the need for matching rate to exposure going forward, Greenberg said, something that the industry has “woken up to” over the last year.
He added that, for underwriters, the pandemic will affect perception of risk by moving “from the more academic to the actual.” And, he added, “reality is always different than the laboratory.”
“It's a peril that has no bounds in terms of geography nor time. So, it's a very different kind of cat and that has, in a practical sense, infinite tail, so it will impact. And by the way, no doubt in my mind, better underwriters had better control over the exposures. And underwriters who were maybe not as good will have many surprises that will emerge,” said Greenberg.
Travelers posts income drop
According to Travelers Chairman CEO Alan Schnitzer, the pandemic will affect the insurer’s net investment income. Travelers reported $600 million in net income for the first quarter of 2020, down from $796 million in Q1 2019. A $86 million pre-tax charge related to COVID-19 affected the first-quarter results.
Speaking during an earnings call, Schnitzer strongly advised against retroactively requiring insurers to pay business interruption losses “would overwhelm the industry’s claims-paying ability for legitimate claims, unfairly leaving many individuals and businesses exposed.”
“Insurers don’t collect premiums to cover losses that policies weren’t written to cover,” he said, adding that spring tornado season is already underway, with hurricane season in the near future.
Schnitzer also noted that state actions to provide presumption of workers compensation coverage would ultimately increase loss costs, raising premiums in the future. COVID-19-related litigation also stands to increase costs, he said.
“The trial bar is already actively soliciting plaintiffs for cases related to the pandemic,” Schnitzer said, citing cases brought over hand sanitizer manufacturing and vaccine research and development. “We should all be concerned that many frivolous lawsuits will be brought and undermine the nation’s recovery.”
Far from over
Insight drawn from the first three months of 2020 is only the beginning for the insurance industry. In its commentary, Willis Re declared COVID-19 “not close to peaking.”
“The societal and economic impact has weeks if not months to go, thus deepening the severity of the impact and delaying the start of any recovery and return to pre-COVID-19 status … For insurers this raises planning issues that must consider how best to navigate the uncertainty adopting the cliché of hoping for the best but planning for the worst,” the broker said.
