David Brown, Chairman and interim CEO of Bermuda-based reinsurer Hamilton Re, has warned that longer-tailed casualty lines could face exposure to indirect losses arising out of the COVID-19 pandemic.
Speaking in an interview with Reinsurance News, Brown noted that there are exposures to claims-made policies in long-tail lines that may only become apparent in the future.
For casualty business written on a loss-occurring basis, most companies have built a figure for these kinds of claims into their estimated pandemic loss.
And many exposures will be dealt with by explicit exclusions for COVID-19 and further pandemic claims.
However, Brown believes there will still be many “grey areas” where economic downturn or volatility could lead to litigation, which is a common theme for financial institutions.
In particular, the Hamilton Re executive highlighted Commercial D&O as one class of business which may be exposed to future coronavirus-related litigation.
This could arise from shareholders of companies with alleged inadequate crisis management and from employees who are made redundant, he explained.
But even in the case of short-tail claims, Brown agreed that the market could be disputing and paying claims for many years to come.
“For short-tail claims notified under business interruption where coverage is not clear or in dispute, this is likely to be a long process, with years of litigation and appeals,” he told Reinsurance News.
“The sums involved for the market as a whole are significant enough to warrant recourse to the highest levels of appeal.”
On the topic of business interruption (BI) claims, Brown was also quick to add that pandemic risk is not something that the private insurance market should be expected to contend with on its own.
“The potential scale of all pandemic losses is much bigger than the capitalization of the re/insurance industry,” he said. “The BI claims in the US alone would wipe out the balance sheet of many industry players.”
Several initiatives are currently under discussion as options for the private and public sectors to collaborate on protection from systemic risks such as pandemics.
For example, in the UK, there is talk of Pandemic Re, and in the US there are several proposals before the US Congress, one of which is similar to the reinsurance backstop put in place after 9/11.
Brown also acknowledged that there are similar levels of uncertainty surrounding other systemic risks, such as climate change, but noted that in this case there is a risk margin priced into exposures.
“Whether it’s adequate, only time will tell,” he remarked. “The industry has a safety net of sorts in that we write policies on an annual basis, so we can adjust pricing and terms over time as actual climate data become available.”
