Covid-19 losses settle, but pandemic effects linger

Insurance industry losses from Covid-19 are estimated at around $44bn to date [1], making the pandemic the third largest catastrophe loss behind Hurricane Katrina and the 9/11 attacks, according to insurance broker Howden. While sizable, the figure is far below estimates made in the initial stages of the pandemic, which predicted losses in excess of $100bn.

“The pandemic was a significant event for the insurance industry and for AGCS, which is a leading insurer in the film and entertainment sector. Basically, all film, production and live events policies issued around the world were triggered by the pandemic,” says Philipp Cremer, Global Head of Claims Performance & Liaison at AGCS.

The bulk of Covid-19 related claims were from event cancellation insurance and business interruption claims from companies affected by lockdowns. There have also been a small number of professional indemnity claims made against advisors, including insurance brokers related to business interruption cover.

In some instances, pandemic-related claims have yet to be fully resolved. Covid-19 business interruption claims have been subject to policy interpretation and court decisions in several countries, notably the UK, Australia and South Africa.

“Some £1bn of business interruption claims related to the pandemic have already been paid, but a number of important cases are being litigated in the UK and elsewhere, so this is still very much an ongoing issue. We might still see even new claims being brought forward possibly as late as next year,” says Cremer.

Covid-19 liability claims under general liability and workers compensation insurance have so far been limited, although historically such claims take several years to materialize. However, the economic environment in the aftermath of the pandemic does pose a heightened risk for directors and officers (D&O) and professional indemnity insurance.

“Certainly we have received reports of claims and circumstances related to Covid, but for financial lines they have yet to make a significant impact,” says David Ackerman, Co-Head of Global Practice Group for Commercial D&O and Financial Institutions Claims at AGCS. “However, as the pandemic moves on, and the impact of Covid-19 evolves, it becomes an issue that is hard-baked into economic change, impacting everything from financial insolvencies to pharmaceutical development to supply chain disruption and inflationary pressures. We have always had to deal with a changing risk environment in financial lines insurance.”

The number of D&O claims typically rises during times of financial market volatility, explains Ackerman. Inflation and rising interest rates, together with the war in Ukraine, have seen signs of volatility in markets, with recent falls in the values of tech stocks, Special Purpose Acquisition Companies (SPACs) and cryptocurrencies. The NDXT index of the 100 largest tech firms on the Nasdaq exchange is down by a third since its peak in November last year [2] while an index tracking the value of large SPAC transactions [3] is down 52% this year.

“There have been big movements in tech stocks, and we have not seen inflation rise to these levels in the past 30 years,” says Ackerman. “It is difficult to know how this will impact claims activity, but we see the potential for an increase in financial institutions and professional indemnity claims, in particular with regard to investment managers. But we do not know how persistent inflation will be or how impactful to the financial lines claims experience, at this stage.”

The pandemic has had knock-on effects that ultimately impact claims, most notably heightened inflation and supply chain disruption. Supply chain disruption, and surges in demand for certain materials and components post Covid-19 lockdowns, are contributing to rising costs of property claims, according to Scott Inglis, Head of Global Practice Group for Property and Business Interruption Claims at AGCS. Shortages and/or delays in the supply of materials and components has resulted in longer restoration times and business interruption.

Covid-19 related shutdowns and disruption in China continue to cause delays to supply chains and shipping times. Rolling lockdowns in major cities, factory closures, port restrictions, as well as a shortage of truck drivers, have led to a sharp decline in China’s export growth [4]. In mid-April, 506 vessels were waiting outside Shanghai’s port, according to Windward [5], a shipping-analytics firm, almost twice the number in February.

Covid has also affected the labor market, prompting a number of people to change careers, take early retirement or seek a different work-life balance. The insurance industry has not been immune to these changes, with intense competition for skilled and experienced risk professions, including those working in claims.

“During the soft insurance market, investment in talent within the insurance industry declined and head counts reduced. Now we see increased competition for skilled specialists, driven by growth in the insurance market and new entrants at a time flexible working is opening up new opportunities for insurers for hiring, including in the claims function, where a significant part of the workforce work remotely,” says Cremer.

“A potential talent crisis is on the horizon, with growing competition for claims professionals. Future shortages could put pressure on claims costs and service,” adds Inglis.