How the Pandemic impact the Insurance Industry

Going in to the second year of the pandemic gives us an opportunity to consider how the pandemic has impacted the Insurance Industry. While business interruption (BI) lawsuits have dominated the headlines the pandemic effect stretch beyond BI claims.

The pandemic has impacted the Insurance industry in all aspects of the business from claims to underwriting methods and human behavior. Those impacts are likely to affect the market for years to come.

Auto Insurance

Because of lockdowns and empty roads claims frequency plummeted. During hard lockdowns empty   open roads encouraged many to drive faster and less carefully. Thus while claim frequency dropped dramatically claim severity increased.  In some countries like the USA Insurance companies rebate premium related to auto insurance   to consumers because of the dramatic reduction in driving. It is estimated that around USD14 billion were refunded to policyholders.

Other Lines 

Other lines of coverage experienced drastic reductions in premium as a result of lockdowns.

For example Travel Insurance, Event Cancelation, Employers Liability, trade credits were lines hit hardest.  Travel insurance dropped by 90%. Other lines like Event Cancelation not only saw reduced premiums but also increased claims. The global event cancelation market that generates annual premium of 500-600 million   saw COVID- related claims of more than 6 billion.

Behavior Change

During the pandemic we saw some interesting changes in human behavior. Dog ownership for example spiked providing growth opportunities for pet insurance. The pet insurance industry night experience dog-related liability claims with so many first time dog owners.  Dog related injuries for the year 2019 reached nearly 800 million for homeowner’s insurers.

Covid related products like sanitizers , disinfectants , masks and other protective equipment might give rise to product liability claims  as in some cases these products did not function as promised , were defective  did not contain proper warning etc.

Life Insurers were also affected experienced an increase in claims due to excess deaths.

How Underwriters Changed

The pandemic has also changed the way Insurers do business from underwriting to claims procedures.

  The pandemic accelerates digitization expanding their business through virtual communications.

On the claims side home visits and in person interviews became difficult if not impossible so Insurers are now applying risk modeling and mobile apps top do their business.  The industry is unlikely to go back to the old ways of doing business.

Nearly every industry has experienced dramatic effects of the pandemic and the insurance industry is no exception.

Insurers are now developing programs to help small business in the event of another pandemic or similar event. Lloyd’s of London is one of them. The Industry appears well positioned to deal with the impacts of the pandemic and play an active role developing solutions for future global catastrophes.