COVID-19 impact to property and casualty insurance

Workers’ compensation insurers are expected to experience a wide array of impacts from the COVID-19 pandemic ranging from an anticipated loss of premium income, varying effects on claim frequency and severity, and a potential surge of customer touchpoints along with internal workforce disruption. This may increase the complexity in serving policyholders and injured workers. 2020 will not be business as usual.

Overall considerations

Workers’ comp carriers will likely see many effects from COVID-19 with varying impacts that actuaries should strive to understand and consider in their analyses. For instance, actuaries may consider reviewing data analytics or performing separate analyses for certain industries, states, and types of medical costs (i.e., pharmaceutical, surgical, hospital, doctor, rehab, etc.).

Medical malpractice is anticipated to be another coverage highly affected by COVID-19 in the United States. While there will potentially be a short-term decrease in claims as some medical procedures are stopped in anticipation of the rush of patients needing COVID-19 treatment, there is the potential for adverse frequency and severity claim trends as COVID-19 cases flood hospitals, with a few caveats to consider. The potential of COVID-19 malpractice claims could stem from failure to diagnose and/or providing inappropriate medical care.

Overall considerations

Given the hardening of the medical malpractice market across some jurisdictions, many insurers have generally struggled to make a profit in this line of business for several years. With the potential for an increase in losses due to COVID-19 related issues, insurers should think about their future pricing strategies given the competitive market conditions.

The impact of COVID-19 on business interruption claims will depend in large part on policy wording, but this area has the potential to be further affected by legislative changes and court rulings.

Overall considerations

Standard business interruption policies should not be impacted by COVID-19 unless legislation is passed or court rulings are handed down that effectively nullify or change policy definitions. Regardless of such coverage decisions, insurance carriers can expect to experience an increase in administrative expenses from responding to state inquiries or data calls as well as claim-related expenses as policyholders file an unprecedented number of claims and potential lawsuits.

COVID-19’s effect on individuals, communities, and organizations is enormous and continually developing. Some impacts are more near-term and visible, while others will likely still be felt and explored for years to come. As schools close, employers shift to work from home, and group events are cancelled in attempts to stem the spread of the virus, roads and highways have seen a reduction in vehicles. US carriers that write auto insurance will see dramatic shifts in business experience.

Overall considerations

In performing auto claim analyses, actuaries may want to consider frequency-severity methodologies and separate analysis by geography (city, county, state), coverage, and industry. Depending on the length of quarantines, accident quarter or accident month analyses may also provide additional insights into changes in frequency, average costs, and claim closure activity.

The effects of COVID-19 on general liability insurance will vary by industry. Premises-related general liability claims are expected to decrease significantly for non-essential businesses, such as retailers and hospitality (restaurants, bars, hotels) while general liability claims may increase for essential businesses (such as supermarkets, pharmacies, and box stores, as well as online retailers). Many essential businesses are experiencing an increase in demand for food, personal sanitation, cleaning, and other critical supplies, leading to heavier foot traffic and higher sales.

Overall considerations

Actuaries may want to consider evaluating analytics and performing analyses separately for certain industries and geographies, as well as consider potential changes in settlement activity, frequency, and severity trends.

The impact on travel insurance depends on the type of policy and the fact that most standard travel insurance policies do not provide coverage for “foreseen events.” Some travel policies may take this further and specifically exclude coverage for travel issues related to pandemics, whether “foreseeable” or not. However, some travel insurers may provide coverage in certain situations related to COVID-19, such as for those travelers who contract COVID-19 or those who planned to travel to countries most impacted by COVID-19 during certain time periods. In addition, travel insurance policies that allow the customer to purchase “cancel for any reason” add-on coverage may provide partial protection for trip cancellations related to COVID-19.

Overall considerations

Travel insurance companies are experiencing an increase in claim activity, which is expected to dissipate, along with new travel policies and premiums. Actuaries conducting travel insurance reserving analyses may need to adjust for more extended claims emergence and payment patterns, particularly if a higher than normal percentage of claims are disputed.

Many construction companies have reduced construction activity with government restrictions on nonessential business to contain the spread of COVID-19. For construction projects that continue, project delays are also occurring as some employees have also decided not to work out of concern of contracting COVID-19. This will likely cause delays in project completions and increase expenditures for equipment (cranes, forklifts, and other machinery), which is often rented, and other items.

Overall considerations

Companies that provide a broad suite of coverages to the construction industry may find it useful to more directly communicate across organizational siloes to understand the varying impacts of COVID-19 on lines of business, such as property, liability, inland marine, and surety.

History tells us that any event in which a company’s market value decreases could lead to directors and officers (D&O) claims, and the COVID-19 outbreak is likely no different. Executives are acting swiftly to keep up with the latest public health recommendations, such as closing offices and shutting stores, but the situation changes regularly. The US Securities and Exchange Commission (SEC) has already ordered publicly traded companies to file disclosures detailing COVID-19’s impact on their operations.

Overall considerations

Time will tell which actions and strategies were correct, and ultimately it may be up to the courts to determine if any of the COVID-19 related market value decreases are the fault of directors and officers. Regardless, it is likely that COVID-19 related D&O claims may arise and insurance companies, at a minimum, will see additional expenses to defend these potential claims.

Cyber insurance has expanded over the past decade, both in terms of sales of stand-alone policies, as well as inclusion in standard coverages. Most larger organizations, government entities, and companies operating in higher-hazard industry sectors have cyber insurance coverage in place. Growth has been slower than projected for midsize and smaller businesses, primarily from limited policyholder knowledge of their risks and understanding of coverage options or relative pricing.

Overall considerations

In the long term, the transition to virtual workspaces resulting from COVID-19 may increase the demand for cyber insurance and further the evolution of cyber insurance products. Actuaries will need to continue to hone pricing approaches, and work closely with underwriters and other business partners to understand the cyber risk landscape.