Despite low numbers of infections and low claims, Moody’s analysts believe insurers in Japan and Korea should expect to face business disruption and financial risk from the coronavirus outbreak, with further downside risk should infections rise significantly.
Analysts say direct claims related to the coronavirus outbreak will come from two main sources: claims related to medical expenses and death benefits from infected victims; and claims related to specific conditions such as event cancellations and business interruptions.
“We expect insurers in both countries will see impact on capital both from increased death benefit claims and financial market volatility, but for medical claims otherwise to be limited with most expenses borne by governments and public health systems and the remainder typically capped,” says Soichiro Makimoto, a Moody’s Vice President and Senior Analyst.
“Moreover, many insurance policies do not cover for event cancellations and business interruptions if caused by infectious diseases.”
Moody’s adds that twile the potential cancellation of the Tokyo Olympics and Paralympics would trigger event cancellation insurance, the impact to Japanese P&C insurers should remain manageable due to low net exposure of the insurers to that risk.
“However, like other companies, insurance firms are seeing lower sales, with primary distribution channels affected by reduced in-person interaction,” said Young Kim, a Moody’s Analyst.
“In addition, the insurers could see investment income decline as central banks push interest rates lower for a longer period.”
In Korea, both life and non-life premiums are primarily generated from direct sales channels, including financial consultants and bancassurance, while in Japan captive sales agents remain key distributors of life insurance products.