COVID-19 - General insurer - class of business effects - COVID-19 blog | Deloitte Australia has been saved
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The impact of COVID-19 on general insurers has different ramifications across pricing, underwriting, claims management and reserving depending on the class of business.
We expect increased claims from customers diagnosed with the virus before or during their trip, as well as those seeking premium refunds due to cancellations and travel bans. These claims will depend on the date of travel and policy inception dates, and exclusions and coverage clauses related to pandemic events.
Commercial property including business interruptions (BI):
While the economic slowdown and reduced business activity will mean lower premium volumes from commercial property, there is a higher risk of vandalism, arson and theft due to both the unoccupied commercial premises and the economic downturn.
We expect large losses in this area, as event policies frequently extend cover to pandemics. This class of business will be exposed to the thousands of events cancelled worldwide, from the small regular community events to the national sporting events, and global events like the Tokyo Olympics which is estimated to have $2bn of coverage.
The majority of these claims relate to ‘slips and falls’ and there will be a number of injuries with a significantly lower claim frequency. However, there will be increased exposure to duty of care breaches in relation to visitors, contractors and those under care. With the potential for new class actions in sectors such as cruise operators.
Significant decreases in driving activity in the community will markedly reduce motor insurance claim frequencies. As a result, some insurers are already offering premium discounts and rebates to policyholders. There will be lower activity levels across the motor insurance value chain, including rosters of repairer networks and levels of salvage and subrogation. Other impacts on motor repair costs will be dictated by overseas supply chain disruptions and movements in the exchange rate.
Similar to motor insurance, the significant decrease in driving activity will also markedly reduce CTP claims frequencies. Some of the effects that impact Workers’ Compensation will also impact CTP. These include delays in healthcare provisions resulting in potentially poorer outcomes for some injured drivers. In addition, the current economic environment will afford fewer ‘Return To Work’ outcomes which is likely to increase CTP utilisation by injured drivers.
Home and contents:
We anticipate a reduction in home and contents claim frequency in the short term due to fewer thefts, but this will be mitigated by a potential for higher accidental damage claim frequency, given people are spending far greater amounts of time at home.
Lenders’ Mortgage Insurance (LMI):
The impacts will be deferred given the six-month mortgage relief by banks, however higher unemployment and a forecast drop in house prices are likely to lead to future higher claims. The uncertainty surrounding this class rests on whether the claims experience will be significantly higher across most of the LMI portfolio or whether it will be contained to certain sectors.
Trade credit insurance:
As many businesses experience the effects of supply chain disruptions and the economic effect of the lockdown, the trade credit insurance coverage of a business’ cash-flow for losses arising from debtor defaults on payment, invoices or insolvency is expected to increase in some areas of the economy three to four fold.
Given the economic downturn, adverse claims are expected and will pressurise builders’ solvency and liquidity levels. COVID-19 is likely to result in higher builder insolvencies resulting in increased non-completion claims or possibly builders performing sub-standard work which will then result in future defect claims.
For actuaries making reserving and pricing judgements starting from the 30 March balance dates and future periods, there are judgement considerations that need to be put into place around the impacts from:
In this turbulent environment of uncertainty one thing is certain, greater attention to actuarial professional judgement is needed to manage the above complex considerations when determining and recommending future estimates and scenarios.
In our next blog we set out the general insurer implications for class of business effects on Workers’ Compensation and Professional Liability.
 Actuaries Institute COVID-19 Taskforce
Kaise is a Partner in Consulting and advises general insurers and reinsurers on a range of matters covering Board and Management insurance reserving advice, corporate strategy, reinsurance programs, claims and capital management, pricing advice on large/complex deals and Appointed Actuary and External Peer Reviewing roles. Kaise’s international experience covers the Australian, New Zealand, South East Asian and European insurance markets.
Rick is a partner of Consulting and part of the Actuaries practice. He has extensive overseas and Australian experience, and is recognised internationally for his work on capital modelling, regulatory systems and pricing and valuation. Rick’s primary focus is developing management information systems and integrating capital models into companies’ decision making. He has also advised regulators on actuarial valuation standards and capital model approval.