Strong reliance on investments throughout the insurance and reinsurance industry makes the sector particularly vulnerable to the COVID-19 pandemic and its accompanying economic turbulence, according to data and analytics company GlobalData.
The firm noted that re/insurers’ balance sheets are increasingly under pressure due to the combination of volatility in financial markets, the increasing cost of claims, and a looming economic recession.
“The pressure placed on insurers has led to concerns for some providers,” said Daniel Pearce, GlobalData’s Senior Insurance Analyst.
He noted that the spread of COVID-19 has highlighted the vulnerability of the insurance industry to external forces, as well as limitations in its ability to offer cover.
For example, many businesses may feel aggrieved that their business interruption insurance does not provide protection against pandemics, leaving them exposed to cover the cost of COVID-19 losses themselves.
“There will undoubtedly be calls for this to change, but the industry will not be able to offer the necessary cover as it would not be financially viable,” Pearce continued.
“Should a global pandemic occur again in the future, the associated cost of claims would far exceed any provider’s means, and their exposure to the volatility of financial markets and subsequent economic recession would put unprecedented pressure on balance sheets.”
