Insurer and reinsurer Hiscox expects its exposure to any business interruption losses from the COVID-19 pandemic to be limited, while its Retail segment makes use of significant levels of reinsurance protection.
The re/insurer has released a statement explaining that its core policy wordings do not provide coverage for BI as a result of general measures taken by the UK government in response to the coronavirus outbreak.
In recent times, there’s been speculation in the insurance and reinsurance market around the potential for some significant BI claims related to the pandemic. It’s been well documented that standard BI insurance policies exclude global pandemics and require a physical damage trigger, such as a fire, suggesting that overall, BI losses are expected to be low for the industry.
However, these are uncertain and challenging times and as the pandemic continues to drive widespread disruption and the closure of thousands of businesses, the market’s and its participants’ exposure to business interruption has been speculated.
In response, Hiscox has provided some more details on its potential BI exposure. Starting with Hiscox UK, and the re/insurer notes that this division provides BI to SMEs as part of its small commercial package policies. Around 10% of those customers purchase BI protection, and Hiscox estimates that of those, around 10,000 have been directly impacted by mandated government closure to stop the spread of the virus.
Of these customers, says Hiscox, roughly 70% have monthly revenues of under £40,000 in a normal trading environment, with a significant portion lower than £10,000 per month.
“The level of economic loss experienced by these businesses is likely to be materially lower than revenues in a normal trading environment,” says Hiscox.
Ultimately, the re/insurer estimates that its business interruption exposure to COVID-19 is limited in Europe, and negligible in the U.S. via its retail operation. Furthermore, the company notes that its Hiscox Retail segment has “substantial reinsurance cover in place.”
While the re/insurer anticipates its COVID-19-related BI experience to be limited, a realistic disaster scenario highlights losses within event cancellation, entertainment and travel. In fact, Hiscox’s scenario finds than in the event of a global pandemic, losses are estimated at $175 million, primarily coming from the three lines mentioned above.
“Hiscox will provide a further update to the market clarifying its potential exposures within the next week, upon completion of on-going business analysis and assessment,” says the firm.
