Massive Covid-19 losses likely, but forced claims could bankrupt: Industry CEO’s

Two very senior insurance and reinsurance market leaders have warned that the sector is already facing “massive” losses from the Covid-19 coronavirus pandemic and that any forcing of business interruption claims on top of that could “bankrupt” the industry.

The comments come from Oliver Bäte, Chief Executive Officer (CEO) of global insurance and reinsurance group Allianz, and Evan Greenberg, CEO of global re/insurer Chubb.

First Allianz’s CEO Bäte, who explained to Bloomberg Television that while its own exposures aren’t that significant, overall he is expecting the industry wide loss from the coronavirus pandemic to be “massive.”

He explained that the pandemic has hit the insurance and reinsurance industry “like a meteorite impact.”

“Losses for the industry, in my personal opinion, are going to be massive,” Bäte said, as reported by our sister publication Reinsurance News.

He added, “I can tell you that across sectors, whether that’s business interruption, travel, media and entertainment coverages, there will be huge losses for the industry coming. It just takes a while for those to materialise. So, 2020 is not going to be a record earnings year for the insurance industry.”

Bäte praised government steps in Germany to backstop commercial credit insurers, but noted that the pandemic is a systemic risk and so one that it is difficult for the re/insurance industry to manage on its own.

“Please remember, systemic risk is not something that the insurance industry can insure. We rely on diversification over time and in the portfolio. Corona, or any large pandemic, is a systemic event that does not have diversification. So, the industry economic model cannot really work,” he commented in the interview.

Chubb CEO Evan Greenberg also spoke with Bloomberg in an interview (as our sister publication also reported) and highlighted that the industry could not take on all the business interruption claims that would flow to it, should legal efforts force the majority of claims through, saying that it risked bankrupting he industry.

He said that the insurance industry is a “fundamental part of the economic plumbing” of the United States, but added that forcing insurers to honour business interruption claims from the pandemic where they were not intended to have been covered would cause “great damage” to it.

“You can’t just retroactively change a contract. That is plainly unconstitutional,” Greenberg explained in another interview with CNBC.

Continuing, “I understand the frustration of legislators, I understand they’re looking for a remedy, but this would be a self-inflicted injury and create great uncertainty at a time when we have enough uncertainty and we’re trying to heal the economy.”

Greenberg also highlighted the importance of a public-private partnership on risks as systemically important and impactful as a pandemic.

There continues to be some concern over the ongoing legal action related to business interruption (BI).

But, as well as that risk, just the sheer scale of the pandemic related claims expected to flow through the market and the fact not all jurisdictions and contracts have strong wording around non-physical damage (PD) BI (some don’t even specify a need for PD) means some claims are expected to end up with reinsurance, retrocession and also some programs backed by ILS funds that allocate to private collateralised deals and quota shares.