Dubai: Insurers will be paying a whopping $107 billion on claims related to COVID-19 – but it’s unlikely that the payouts will end with that.
The global insurance industry has simultaneously seen a $96 billion drop in value of its assets, and “together making it the industry’s largest ever loss,” according to a new update from Lloyd’s, the underwriter.
Then again, the true extent of the COVID-19 led damages will never be known - most businesses operated without cover for any interruption from communicable diseases prior to this pandemic.
In comparison, 2005’s Hurricane Katrina – and relatively minor ones Rita and Wilma - was a less devastating blow, leading to claims of $116 billion, while the earthquake and tsunami that hit Japan in 2011 led to payouts of $40 billion.
“The global insurance and reinsurance industry is responding to customers’ immediate needs, both unilaterally and in partnership with governments and third-parties, by committing funding and resources to support and accelerate economic recovery,” the Lloyd’s report adds.
“Brokers and other advisory firms are working with customers to understand their changing needs better and help them recover from their losses.”
Situation in the UAE
According to market sources, insurers here have, so far, not been flooded with claims from businesses, related to losses sustained from disruption to operations, loss of orders, delays to shipments, etc. But this could all change in the next few weeks as businesses get a better grip on what the COVID-19 will likely cost them.
Even then, there are limits to what insurers can cover for. “Systemic risks such as pandemics that cause large economic and societal losses are unlikely to be covered in their entirety by the global insurance industry as the total economic loss would exceed its financial resources,” said Lloyd’s.
“Where cover is available, premiums can be significant for what many customers have previously regarded as remote threats.”
That could well be the single point on which businesses choose one insurer over another going forward. Premiums related to covering business continuity and other esoteric threats are heading up, and will severely test clients ability to pay up.
Covering for a pandemic will become as vital as taking out a policy against fire or other more likely disruptors.
“Customers will increasingly seek cover for both future pandemics as well as other systemic threats,” the report notes.
“The global insurance industry must respond urgently to customers’ changing needs,” the Lloyd’s report states. “If it doesn’t, it risks losing customers who could seek to establish or increase their use of self-insurance through captives, or not buy cover at all.”
Climate change, anyone?
This could extend to insured protection against “accelerated” climate change risks, supply chain failures, and, just as vital these days, threats from cyberattacks.
An immediate priority
For the insured, the key question is how well are they protected against a second wave of the pandemic spreading and adding to the disruptions. In short, businesses want to:
* Ensure business resilience to a second wave;
* Safeguard employees as they return to work;
* Provide a safe environment for customers as businesses reopen; and
* Provide clarity of insurance cover.
Obviously, there will be a cost to all this.
“The return to work is fraught with complexity - companies need to keep their employees and customers safe, both from the current virus and from any potential further waves,” Lloyd’s states. “At the same time, they are facing restricted working conditions, falling demand and changing customer behaviours.
$9trillionGlobal government fiscal support packages in response to the pandemic totaled as of May. But this could swell to $15 trillion by the end of the year.
“This is changing the type of risk protection they are looking for over the short, medium and long-term.
“Most businesses should be able to obtain the core commercial insurances that protect their employees
and customers as they restart operations, provided they can demonstrate (through an audit process) that they are following government guidelines on social distancing and PPE usage.”
The cover could be used to ensure payments after catastrophes such as a cyberattack or solar storm destroying critical infrastructure, as well as for pandemics.
Insurers in Britain, France, Germany and the US are seeking government-backed “Pandemic Re” cover for future pandemics, similar to existing pooled insurance schemes for damage due to terror attacks.