Lloyd’s of London revealed it will pay claims in the range of $3 billion to $4.3 billion as a result of the COVID-19 pandemic.
This payout is on par with the Sept. 11 terrorist attacks, which cost the Lloyd’s market $4.7 billion, and the combined impact of Hurricanes Harvey, Irma and Maria in 2017, which had a price tag for Lloyd’s of $4.8 billion.
Lloyd’s cautioned that these initial projected losses could rise further if the current lockdown continues into another quarter. At this point in time, Lloyd’s said its customer payouts are split by class of business as follows: event cancellation (31 percent), property covers (29 percent), credit lines (11 percent) and 15 other classes (29 percent).
Once the scale and complexity of the social and economic impact of COVID-19 is fully understood, the overall cost to the global insurance non-life industry is likely to be far in excess of the record catastrophic losses of the past, said Lloyd’s.
Estimates of the industry’s overall losses are $203 billion, Lloyd’s said, including underwriting losses from COVID-19 of approximately $107 billion and decreases in investment portfolios of an estimated $96 billion.
The hit to the industry will likely be at the level of some of the biggest claims years when three catastrophic windstorms have struck, said Lloyd’s, citing Hurricanes Katrina, Rita and Wilma in 2005 and Hurricanes Harvey, Irma and Maria in 2017.
“Importantly, these natural catastrophes were geographically contained events, occurring over the course of hours and days – vastly different in nature to the global, systemic and longer-term impact of COVID-19,” said Lloyd’s in a statement.
Lloyd’s believes that once the scale and complexity of the social and economic impact of COVID-19 is fully understood, the overall cost to the global insurance non-life industry is likely to be far in excess of the record catastrophic losses of the past.
“What makes COVID-19 unique is not just the devastating continuing human and social impact but also the economic shock. Taking all those factors together will challenge the industry as never before, but we will keep focused on supporting our customers and continuing to pay claims over the weeks and months ahead,” emphasized John Neal, CEO of Lloyd’s.
New Product Development
“Alongside making record payouts, we have been turning our attention to what more we can do to support business and society through this incredibly difficult time,” Neal said.
“In addition to our £15 million [US$18.4 billion] package of charitable donations, we have set aside £15 million in seed capital to explore how the industry can create or house structures which support economic recovery and mitigate against future events of this magnitude. We are also working with our advisory committees to develop a number of initiatives to support our customers and economic recovery in the short, medium and long term,” Neal continued.
Lloyd’s noted that experts in the market have started creating new policies to support the immediate health response to the COVID-19 crisis, which includes the search for diagnostics, treatments and vaccinations. For example, one Lloyd’s syndicate – Newline Syndicate 1218 – is insuring more than 100 individual clinical trials taking place around the world investigating all stages of COVID-19.
Lloyd’s is also repurposing existing innovation initiatives in its Innovation Lab and Product Innovation Facility to help fast track development of insurance products to support the response to COVID-19.
Lloyd’s said it will announce a series of further initiatives in the coming weeks as it continues to work with government, industry and business to support the short-, medium- and long-term response to COVID-19. Under consideration is the formation of a “Recover Re” insurance vehicle, offering after-the-event cover for pandemic-related business recovery, which would include the current COVID-19 pandemic.
Responding to the estimate by Lloyd’s that it could play coronavirus-related claims of $3-$4.3 billion, Christopher Croft, the CEO of London & International Insurance Brokers Association (LIIBA), said:
“While it’s important to quantify the impact of Covid-19 on the market, the danger with industry numbers is that we focus too much on dissecting them at the macro level, talking about loss ratios and capital adjustments, and not enough on the experience of the individual businesses underlying them. We must not lose sight of the fact that this number is a culmination of clients in crisis. It’s not just about the money; our members are using all their skills and experience to help these businesses survive what are exceptionally challenging times. This is our chance to bring compensation and support into each business’s story.”
*This story ran previously in our sister publication Insurance Journal.