UK insurers face £1.2bn Covid-19 loss, says ABI. Analysts say that’s too low

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The Association of British Insurers (ABI) has estimated that UK insurance companies face around £1.2 billion of losses due to the Covid-19 pandemic, but analysts said this figure is likely to rise and the number does not include losses falling to the Lloyd’s market.

abi-insurers-logoThe ABI’s estimate is just for 40 of its member companies (representing 80% of ABI member premiums), so not the entire insurance sector in the UK.

The $1.2 billion is also not from across the market’s full range of protection offerings, as it only factors in business interruption, travel insurance, weddings policies and cancelled school trips, the ABI said.

“This figure is a working estimate. The data is aggregated to provide as full a picture as possible at this stage. The figure does not include claims made through Lloyd’s and the London Market which will be needed to provide a total figure for the UK market response,” the ABI further explained.

Of the £1.2 billion, the ABI estimates that business interruption claims will account for £900 million, while travel insurance cancellation claims make up and a further £25 million from cancellations on policies for wedding insurance, school trips and events.

The ABI noted that, “While most businesses will not have purchased insurance to cover against Covid-19, for those that have claims, some are expected to be substantial.”

Analysts said today that the business interruption figure is likely much higher, as this ABI estimate likely only includes policies where coverage is included, so not any policies where wordings are less clear and legal action could be possible. There’s a strong possibility the estimates for other areas of coverage will rise too.

Huw Evans, the ABI’s Director General commented, “This is an unprecedented event, and insurers recognise that it is a very worrying time for everyone. While many business owners are uninsured for pandemics, UK insurers still expect to pay over £1.2 billion in claims, making this a significant insured event.”

Once losses to the London market and Lloyd’s are factored in the figure should rise significantly and it’s far too early to tell the impact to reinsurance capital from the pandemic.

The ABI noted that there are challenges in providing pandemic coverage currently.

“No country in the world is able to provide widespread pandemic insurance. Whether cover for pandemics can be provided through an insurance model in the future is an important debate. Given the massive, systemic impacts affecting a huge number of businesses at once, it is clear that significant state involvement would be required,” the ABI said.

But this also means the insurance sector may be more exposed to a financial hit from these claims, as “Only a small number of businesses have policies that could provide coverage against Covid-19, insurers have not been collecting premiums (and therefore building up reserves), that enables them to pay claims in this area,” the ABI explained.

Which may make their reinsurance arrangements more important in this scenario, although whether insurers can claim on them remains to be seen.

Evans commented, “We are also painfully aware that the majority of businesses are uninsured for global pandemics, as is the case throughout continental Europe and North America. Although ABI members expect to pay £900 million in business interruption claims, most policyholders are not covered for pandemic losses. We agree strongly that the UK should examine public-private partnerships to find a lasting solution, to enable more affordable, more extensive pandemic insurance cover to be available to those firms who want it.”

Presumably the ABI will support industry efforts to secure a reinsurance pool or facility to help insurers provide more pandemic coverage in future, such as the initiative launched by UK insurance and reinsurance industry leaders to work with UK government backed mutual terrorism reinsurance firm Pool Re.

On the ability of the UK insurance industry to provide pandemic related coverage, Evans explained in a letter to the Treasury that, “It is worth noting that the operation of the global reinsurance market will be a key factor in the extent to which firms can continue with existing coverage or have to withdraw it.”

Realistically, the ultimate industry loss to UK insurers from Covid-19 will be much higher than the £1.2 billion working estimate.

As we explained Friday, the industry is braced for what could the largest industry loss in its history.

Other estimates include, Dowling & Partners estimate that the P&C industry loss alone will be between $40 billion and $80 billion, as well as UBS’ revised Covid-19 industry loss estimate of between $30 billion and $60 billion.

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