Fitch Ratings has released a report that explores how Property and Casualty (P&C) insurers are continuing to face new operational and risk management challenges, some of which include pandemic-related insurance losses and premium volume declines in 2021.
The rating agency believes that insurers will be best positioned to adapt to the current climate if they are able to manage the challenge of workforce flexibility, limit risk aggregations and reduce claims exposure through disclosure/exclusionary language and clarity of policy terms.
It estimates incurred loss from coronavirus claims totalled approximately $8 billion for North American publicly traded insurers to date and approximately $23 billion, including large global re/insurers.
However, drawn out settlement litigation for claims in a number of segments are expected to take years. Ultimate insured losses will depend on uncertain factors, including: the duration of the pandemic, extent of economic shutdowns from potential future waves of large-case outbreaks, the timing of return to more normal business and social activity, and the speed and strength of the economic recovery.
Higher pricing following recent losses, compounded by fear and uncertainty of pandemic-related claims, has led to tighter underwriting terms and conditions in many areas, with commercial lines rate increases unseen since 2003. Changes in market conditions boost the potential for profit improvement when pandemic-related losses subside.
Although, larger underwriting profits will be required to generate adequate returns to offset investment income declines as a result of persistently low interest rates. Challenges in managing traditional sources of volatility, such as natural catastrophe exposures or claims severity from medical and litigation costs, could also hinder future progress toward profitability.
Many aspects of business and social interactions are unlikely to fully return to prior norms, which creates challenges in assessing and pricing risk for insurers. The pace of economic recovery and return to more normal activity will influence claims frequency trends in segments with large recent declines, including automobile and workers’ compensation.
