COVID-19's Impact on the Insurance Industry: How Losses and Claims Are Shifting Across Different Lines of Business

According to research by Willis Towers Watson, the COVID-19
pandemic has had a substantial effect on the insurance sector. According to the
analysis, the illness will result in a net drop in losses for personal and
commercial vehicle insurance in the US and the UK, but an increase in losses in
other categories, such as workers’ compensation and business disruption.

Auto insurers are anticipated to experience a £51 billion
reduction in claims costs this year under Willis Towers Watson’s “moderate
scenario,” which assumes that social distance measures will be successful
in halting the spread of the virus within six months. Of that amount, £16
billion will be given back to customers in the form of refunds. However, if a
“severe” scenario transpires in which social isolation policies
remain for a full year and a worldwide economic downturn lasts until the start
of next year, the insurance sector may incur £140 billion in additional
expenses for other lines including general liability and workers’ compensation.

An “optimistic” scenario is also presented in the
paper, presuming that government mitigation efforts would be very successful
and will be able to contain COVID-19 within three months. In this case, the
decrease in vehicle claims would only be £28 billion, which would be more than
offset by an increase in business disruption and event cancellation claims of £1.1
billion and directors’ and officers’ claims of £600 million.

Whatever the case, it is anticipated that the workers’
compensation line would experience the most losses from the pandemic compared
to other lines. Each COVID-19 claim, according to Willis, will cost £35,000 for
medical care and £3,000 for temporary incapacity, with some of those claims
involving fatalities costing an average of £1 million for doctors and £750,000
for other healthcare professionals.

The analysis concludes that unintentional losses brought on
by vague language in smaller business plans might “substantially
exceed” costs from the World Trade Centre terrorist attack on September
11, 2001. According to the analysis, there is a significant chance that the
insurance industry’s image would deteriorate.

Even though the future is still unknown, insurance firms
will need to adjust to these novel situations to reduce losses and help people
who are affected by the epidemic.

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