On balance, both losses and loss adjustment expenses from hurricanes will increase as a result of the challenges and disruption being caused by the COVID-19 pandemic, says Karen Clark & Company (KCC) in a new report.
Numerous forecasters have said that it’s likely the 2020 Atlantic hurricane season will see an above-average level of activity, with a major hurricane landfall in the U.S. also believed to be likely in the coming months.
Certain factors, including the potential for El Nino conditions – which suppress hurricane activity – to transition to neutral or La Nina conditions, suggest that above-average activity is more than likely for the upcoming season, undoubtedly putting property insurers and reinsurers on high alert.
Of course, homeowners and businesses in regions vulnerable to hurricanes do typically prepare for storms, securing properties by shuttering windows and other openings in an effort to minimise damage. Additionally, many individuals also prepare for extended power outages by stocking up on things like water, food, and batteries, for example.
However, the rapid spread of COVID-19 across the world has resulted in social distancing measures and relatively low inventories, which KCC says could hinder preparatory activities.
“People may be unwilling or unable to take these steps to mitigate damage to their properties. Properties that are second homes are less likely to be protected if owners are restricted from or reluctant to travel to these properties in advance of a storm,” says KCC.
As a result, catastrophe risk modeller KCC warns that some homes and small businesses might not be as well protected against wind and storm surge this year, “perhaps increasing the severity of claims.”
Furthermore, warns KCC, COVID-19-induced social distancing, the need for PPE, more expensive lodging, and other restrictions related to the pandemic will also raise the cost of adjusting hurricane claims this year.
Additionally, the report from KCC also warns that business disruption claims are likely to increase this year as medical facilities and other businesses incur additional costs for both preparing for and responding to hurricanes in the months ahead.
On a more positive note, KCC does say that fewer mandatory evacuations as a result of the challenges related to maintaining social distancing in shelters, will likely lead to less additional living claims and lower losses.
However, overall, losses are expected to increase owing to hampered preparations, more complicated business interruption claims, remotely settled claims, and increased contractor costs.
“Hurricanes and COVID-19 are not a good mix,” says KCC.
“The losses from events causing widespread low-level wind damage will increase proportionately more than the losses for more damaging events. For the exceedance probability (EP) curves, this means larger increases for the lower return period losses.
“Claims adjusting costs are likely to increase significantly for the more complex claims, but with new technology these costs can be minimized for small, remotely-settled claims.”