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COVID-19 pandemic is not an insured event, but a reputational one: WTW

7th May 2020 - Author: Luke Gallin

Insurance and reinsurance broker Willis Towers Watson (WTW) highlights an uncertain and pressured outlook for North American commercial insurance buyers in light of the COVID-19 pandemic.

willis towers watsonIn its Insurance Marketplace Realities 2020 Spring Update, WTW predicts large reductions in insurable values but notes that overall, not one line of business predicts rate decreases, suggesting buyers will be faced with continued upward pricing pressure across the majority of classes.

Of course, in many lines of insurance business the ultimate impact of the current crisis remains to be seen, and only time will tell just how profound the changes will be.

Many global insurers and reinsurers have now reported their first-quarter 2020 financials, and as expected, certain lines are experiencing more claims than others, while policyholders frustration at a lack of effective business interruption coverage has been well documented throughout.

“To the frustration and disappointment of some, for the most part, a pandemic is not an insured event,” said Joe Peiser, global head of broking at WTW. “Nonetheless, this will no doubt be a reputational moment for the insurance industry, to be judged by the extent of which it was perceived to help organizations weather this storm.

“So, what can risk managers do? Review exposure data. Comply with governmental directives to reduce potential harm and mitigate liability. Gather policies and have an expert review, as they will be the likely sole factor in determining coverage.”

As noted by WTW and numerous re/insurers in recent weeks, the large majority of BI policies require a physical trigger, such as a fire, and therefore aren’t covered under the pandemic. For those few that have purchased non-physical damage BI extensions, coverage will apply.

According to the report, the pandemic and economic downturn will “very likely” extend the hard market through 2021. Market discipline is also expected to persist as insurers come to better understand their exposures and ultimate losses, while investment income fades amid financial market volatility and stressed equity markets.

“While we expect pressure on coverage to last for the foreseeable future, mainly due to significant policy language disparities brought into focus by the inconsistent language addressing pandemics, the good news is the insurance industry is solvent, well capitalized and positioned to deliver,” said Peiser.

Looking at the broker’s key rate predictions for the remainder of 2020, and property lines are expected to see rate increases of +30% more in cat-exposed loss-affected lines; +15% – +25% or more in cat-exposed risks; and +10% – +20% in non cat-exposed risks.

In casualty, excess (high hazard) rates are predicted to increase by +150% or more, while general liability pricing could be up as much as +7.5%. Rate increases are expected across the casualty space with the exception of International (flat) and workers comp (-2% – +2%).

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