Key property/casualty insurance lines could face COVID-19 insured losses reaching a combined $80 billion in a worst-case scenario modeled by Willis Towers Watson as part of a new report.

U.S. and U.K. business interruption, contingency, U.S. directors’ and officers’, employment practices liability, general liability, mortgage, trade credit and surety and workers compensation are the affected lines Willis Towers Watson looked at for the development of its worst case “severe” scenario, as well as a “moderate” outcome and an “optimistic” or best-case situation.

A best-case optimistic scenario might bump those losses down to $11 billion, with three months of social distancing, the report noted. A more “moderate” scenario would still hurt, with insured losses potentially costing as much as $32 billion, according to Willis Towers Watson. This assumes 6 months of social distancing, while a severe, worst-case scenario would require months of distancing and other restrictions in a manner rivaling the realities of the 1918 global flu pandemic, which lasted for years.

Each Willis Towers Watson estimate makes an assumption in the rate of new COVID-19 cases in the coming months, something that modelers and health officials have struggled to pinpoint accurately. Willis Towers Watson’s estimates variables such as the effectiveness of controls and medical advances, and also which line might see the most severe impact overall. Some lines are more likely to undertake major hits, it added.

Regardless of which one ultimately transpires, The consultancy and broker said both government and carriers must prepare for the next pandemic even as they continue dealing with COVID-19 right now.

“Beyond its devastating human cost, the COVID-19 pandemic has swiftly upended economic activity around the world. It appears the industry-wide level of general insurance loss could exceed that resulting from the 2001 World Trade Center event,” Alice Underwood, global leader, Insurance Consulting and Technology, Willis Towers Watson, said in prepared remarks. “Given the potential scale and systemic nature of pandemic loss, discussions about the need for some sort of government backstop to address future pandemic risk have already begun.”

Here are highlights of Willis Towers Watsons’ estimates based on estimates from each of its three scenarios:

  • Business Interruption and Event Cancellation. Willis Towers Watson said these lines are especially vulnerable, and could see a 7 percent to 13 percent reduction in premium volumes in the U.S. and UK compared to 2019. That translates to a market insured loss of between $1 billion and worst-case $14 billion in the U.K., and $2 billion to $23 billion in the U.S. Willis Towers Watson warns many uncertainties remain, including the extent of claims stemming from lockdowns or social distancing, and precise policy wordings.
  • Directors and Officers. Willis Towers Watson envisions a moderate impact causing $600 million to $4 billion in insured losses across the U.S. and Bermuda markets. Mitigating factors include lawsuits over what is covered, claims stemming from misleading regulatory filings and company bankruptcies.
  • Employment Practices Liability. This line could see an impact ranging from $300 million to a worst-case $3.6 billion loss in the U.S. A major uncertainty, according to the report: Employees laid off during the pandemic could sue for wrongful termination or discrimination.
  • General Liability (including nursing home and Processional Liability). Willis Towers Watson estimates a possible reduction in U.S. premiums ranging from $1.5 billion to $6.3 billion. Losses could range from $700 million to a severe $27 billion in U.S. and Bermuda markets. Variables: lawsuit alleging companies were negligent in terms of coronavirus transmission, and whether negligence can be proved.
  • Mortgage. U.S. and Bermuda markets could face insured losses up to $1.7 billion, though variables including unemployment rates and the impact of the economic downturn on home prices remain in play.
  • Political Risk, Credit and Surety. Estimates point to a possible 12 percent to 34 percent reduction in written premiums. The London market could see losses between $1.1 billion to $5.2 billion, and the industry might see up to $800 million in losses for the U.S. surety market. Government support for businesses and the severity of the economic downturn remain variables.
  • Personal Travel. Predictions point to a 29 percent to 78 percent reduction in 2020 policy year written premium for both the U.S. and UK. Whether and when the demand for holiday travel returns is a key variable right now.
  • Workers Compensation. Willis Towers Watson estimates a 12.5 percent to 25 percent reduction in U.S. written premiums for 2020. Estimates point to insured losses ranging from $200 million to $92 billion in the U.S. market. The final number will depend on the number of claims brought on by healthcare workers, a class of workers most at risk of contracting COVID-19, Willis Towers Watson said.

Little or Positive Impact For Some Lines

On the flip side, not every insurance line is expected to be negatively impacted.

Willis Towers Watson estimates a positive impact for personal and commercial auto. Estimates for this line point to an up to 11 percent reduction in 2020 earned premiums in the UK. For the U.S., the market could see personal auto rebates of 40 percent with a 10 percent reduction for commercial auto.

Driving less means a reduction of $1 billion to $7 billion in insured losses for the U.K. market. For the U.S., personal auto insured losses could drop between $26 billion and $57 billion, and between $2.2 billion and $9.4 billion for commercial auto. Variables include the degree of U.S. premium rates, total reduction in miles driven and the impact of supply chain disruption on the average cost of damage claims.

There’s also marine, aviation and transport, which Willis Towers Watson said could see little impact. Willis Towers Watson said premiums could drop between $700 million and $1.5 billion for the U.S. market, and $600 million and $1.2 billion for the UK market. In turn, claims could drop between $800 million and $1.3 billion in the U.S., and $600 million and $1.1 billion for the U.K.

Willis Towers Watson’s full report is a “Scenario Analysis of the COVID-19 Pandemic. The firm describes it is as “an independent assessment using a scenario-based approach to add a quantitative dimension,” and also “an early attempt to understand the different dynamics affecting property and casualty insurers.”

Source: Willis Towers Watson