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Insurance companies globally continue to be affected by the COVID-19 pandemic. This impact has taken many forms whether it be increasing claims or increased pressure to have sustainable business continuity plans that ensured the continued operation of business as the world came to a stop.
The International Monetary Fund’s (IMF) May 2020 Special Series on COVID-19, reported that the virus would affect insurers both directly, via health shocks (increases in mortality and morbidity), and indirectly, via financial shocks (lower equity prices, higher credit spreads, widespread downgrades, and lower short-term and long-term interest rates including due to quantitative easing).
During a pandemic environment, it is expected that claims will rise due to increased mortality. However, it is also likely that future annuity payments will decline, partially balancing the increased mortality. Despite this, insurers who offer products with guarantees are now scrutinizing their investment portfolios as markets remain volatile.
General insurance is usually short-tailed in nature and provides protection against various kinds of losses to automobiles, home, liability and businesses. As lockdowns continue worldwide, it is expected that auto claims will fall significantly. However, general insurers which provide business-interruption coverage are expected to see an increase in claims once it is determined that a pandemic is covered. It is also expected that health insurers will see higher claims due to increased costs.
Insurers in Barbados who write short-term business, some of which is health insurance, have not reported any significant increase in claims. As the country remained on lockdown until July, and the spread of the virus was contained, the insurance companies have reported that they do not foresee any spike in claims at this point.
The main areas of vulnerability or concern are related to underwriting profitability as premium and investment income are expected to fall. The year 2020 has seen a record high for unemployment claims for the country. Higher unemployment is expected to lead to reduced premium collection (both from existing customers and due to reductions in new business) and may also affect pension products. In addition to reduced premiums, the life insurance sector also expressed concerns about policy surrenders and mortgage delinquencies.
One potential upside is that the lockdown has forced companies to review business continuity plans. As such, entities have indicated that the lockdown has improved their ability to function remotely and some companies reported that they will be transitioning some services to online systems and have placed increased emphasis on cyber security.
Taken from the 2019 Financial Stability Report.
References:
Divya Kirti and Mu Yang Shin (2020). “Impact of COVID-19 on Insurers.” International Monetary Fund Research, Special Series on COVID-19, May 2020.