COVID-19 pandemic and the UK insurance market — what on earth is going on?!

Whilst the tragedy caused by COVID-19 cannot be described in words, we can try to describe its effect on the UK insurance market and essentially, its threat to “life as we know it”. The pandemic has taken the market by storm. We were just speaking on claims from storms Ciara and Dennis, that could cost the UK insurance market $473.7m in 2020, but COVID-19 is expected to represent the largest insured loss event in history.

The UK insurance market is the largest in Europe and fourth largest in the world, right behind the United States, China & Japan. Thanks to the Lloyd’s and London insurance market, the UK has remained competitive with $336.5bn in direct premiums written (2018). Furthermore, the financial services and insurance market combined contributed £132bn to the UK economy — 6.9% of UK GDP.

How are UK insurance carriers affected by COVID-19?

The UK insurance market (amongst the global insurance market) has been badly affected by the pandemic, and there are mixed feelings on how carriers are reacting. Whilst some insurers have pledged added support to policyholders (i.e. home insurance for those working from home), we expect COVID-19 related claims to rise significantly. Early estimates from the ABI suggests its members expect to pay out £1.2bn in COVID-19 related claims (this figure excludes claims made through Lloyd’s & the London market).

Business interruption, contingency, D&O, general liability & trade credit are expected to be the most affected lines of business. Willis Towers Watson’s prediction based on a moderate scenario (6 months of social distancing) is that there could be US$32bn of COVID-19 related insured losses across the UK & USA. To say COVID-19 will put a dent in insurers’ balance sheets, might be the understatement of the year.

What role(s) do brokers play during this madness?

Although we can agree that there are many aspects of the market that will be affected by the COVID-19 pandemic, it is difficult to tell you exactly what the eventual outcome would be. If I could tell you that, I would be busy buying lottery tickets (virtually of course) rather than writing this article. Brokers/intermediaries are critical in helping clients better understand the exclusions in their policies, navigate the current headwind of insurance companies declining cover for COVID-19 related losses; and help find effective insurance coverage post-pandemic. You could find the spotlight shift from insurers to brokers if there is a gap between what insureds have been advised that their polic covers, and what it actually covers. Half of UK businesses are expected to furlough many of their staff, an indication that small businesses are hurting and brokers should focus on customer support and readily available resources their clients can turn to.

With that being said, every cloud …

• Engaged couples stand to lose tens of thousands of pounds on cancelled weddings, as insurers refuse to pay out over the COVID-19 pandemic. Majority of policies apparently don’t include cover for government or local authority action.

• Some organisations have predicted the world to be heading towards a recession *shocker*, with the length estimated to be between six months and three years.

• Hiscox expects $150m of COVID-19 related claims, particularly focused on event cancellation, media & entertainment, and other areas such as travel where the business is actively settling claims.

• Covea UK faces £160m+ BI exposures on a UK nurseries product. Covea NurseryCare product, distributed to more than 3,700 UK nurseries, includes cover for government or local authority action!

• New research from McKinsey suggests that a third of UK small businesses could stop buying business interruption insurance, caused by a loss of confidence in insurance.

… has a silver lining.

• UK government is in talks regarding the provision of a backstop for trade credit insurance to ensure supply chains keep operating during the pandemic.

• FCA issued a statement saying insurance firms should consider giving customers premium payment holidays, waiving administration & cancellation fees, and partly refunding premium payments.

• Admiral’s automatic payment of £25 per policy makes Admiral the first UK motor insurer that has begun offering rebates to customers this week. The insurer will be refunding £110m of premiums by 31st May.

• ABI members have pledged to ‘ensure that customers are provided with, or directed to, the most up-to-date information around the outbreak and publish clear information at the point of sale around the valid coverage of their policies’. You can kiss goodbye (temporarily) to your GDPR rights!

In summary, there is a lot happening in the market. We can see mounting pressures on insurers to better support small businesses and policyholders. Insurers have insisted that business interruption policies do not cover the pandemic and the FCA has asked for a court ruling on whether some BI policies should pay out. I’m afraid this article might just be scratching the surface and I have dared to open pandora’s box by writing a COVID-19 series. Wish me luck and watch this space!

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Stay safe, look after yourselves and please follow government guidelines.

Sources: OECD, ABI, Willis Towers Watson, House of Commons

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Ade Akindele

Ade Akindele

My purpose here is to provide you with a different perspective on everything going on in the world. Hit the follow button, I promise you won’t regret it.

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