National Association of Mutual Insurance Companies (NAMIC)
Thomas Karol, General Counsel
The fallout from the COVID-19 pandemic is directly impacting property and casualty insurance companies and is expected to continue to affect claims and premium trends in 2021 and beyond.
Workers’ compensation insurers are facing a continued reduction in premium income as many policyholders both reduce their workforces and face COVID-19 related claims, made more accessible by regulatory changes. Potential COVID-19 liability exacerbates uncertainty regarding the average cost of workers’ comp claims.
With respect to business interruption coverage, there have been more than 200,000 claims made and roughly 1,500 court cases brought against insurers claiming coverage. How the courts address these cases could result in thousands more, raising severe litigation cost concerns.
In auto insurance, claim frequency slowed with less driving during the early months of the pandemic, but claim severity has spiked in certain areas; even so, regulators have pressured insurers to lower or return premiums. Private-passenger auto insurers returned around $14 billion in auto insurance premiums to the nation’s drivers in 2020.
COVID-19 general liability claims may occur from customers claiming that they contracted the virus from a business' operations, premises, or products, and general liability insurers may experience an increase in expenses to defend policyholders. As companies struggle to stay in business and keep workers employed in the pandemic, it is likely that COVID-19 related director and officer errors and omissions claims may arise, and insurance companies will see additional expenses to defend these potential claims.
Given the effects of COVID-19 and the shift toward virtual work environments across the globe, there is increased exposure to cyber insurance losses.
Moreover, as a result of some state mandates, carriers have also been implementing premium moratoriums where they will not cancel policies for missed premium payments. States have also considered law and regulations that would retroactively alter existing insurance policy language to remove exclusions and mandate coverage for which premiums have not been received.
The impact of COVID-19 on the insurance sector will not be limited to the claims incurred as a result of the insurance coverage provided. Like other sectors, insurance companies will also face the impacts of continued confinement measures, staff absences, and the challenges of implementing business continuity arrangements to ensure their ability to maintain core operations. They will also face reduced revenues as the demand for various types of insurance coverage (event cancellation, travel, etc.) declines.
The economic and societal shifts experienced during the COVID-19 pandemic will likely continue to impact the P&C insurance industry moving forward, whether it is through government-backed pandemic insurance, rebates, disruptions to exposure and cost trends, or new interpretations of coverage language. When combined with the continued challenges presented by a hard market and a low-interest rate environment, this forebodes a challenging year for the P&C industry.