The magnitude of the COVID-19 pandemic as an economic loss events is unprecedented for companies and insurers alike and claims trends and risk exposures are likely to evolve in both the mid- and long-term as a result of the pandemic, according to a new report Covid-19 – Changing Claims Patterns from Allianz Global Corporate & Specialty (AGCS).
With the reduction in economic activity during lockdown phases, traditional property and liability claims have been subdued, most notably in the aviation and cargo sector, but also in many other industries with fewer accidents at work, on the roads and in public spaces, the report notes.
“The coronavirus outbreak has reduced risk in some areas while, at the same time, changing and heightening it in others. The wider changes in society and industry brought about and accelerated by the pandemic are likely to have a long-term impact on claims patterns and loss trends in the corporate insurance sector,” AGCS Chief Claims Officer Thomas Sepp says in an interview on AGCS’ website. “The growing reliance on technology, shift to remote working, reduction in air travel, expansion of green energy and infrastructure and a rethinking of global supply chains will all shape future loss trends for companies and their insurers.”
The AGCS report identifies the impact of the pandemic on claims trends in different lines of insurance
Property damage claims were not significantly impacted by Covid-19. However, as production lines restart, this can exacerbate the risk of machinery breakdown and damage and even fire and explosion. Covid-19 has caused business closures globally – which often may not be covered. However, the pandemic has impacted the settlement of standard business interruption (BI) claims in different ways. On one hand, factories in hibernation will not produce large BI claims. On the other hand, lockdowns can lead to longer and more costly disruptions as restrictions prevent effective loss mitigation.
Liability and Directors & Officers (D&O) Insurance
To date, AGCS said it has only seen a few liability claims that are Covid-19 related. However, liability claims are typically long-tail with a lag in reporting, so general liability and workers’ compensation claims may yet materialize. A number of outbreaks of coronavirus have been linked to gyms, casinos, care homes, cruise ships or food/meat processing plants. Insolvencies, as well as event-driven litigation, could be potential sources of D&O claims. To date, there has been only a small number of securities class action lawsuits related to Covid-19 in the U.S. The pandemic could trigger further litigation if it is perceived boards failed to prepare adequately for a pandemic.
The aviation industry has seen few claims directly related to the pandemic to date. A few passengers have sued airlines for cancellations or disruptions. Slip and fall accidents at airports – traditionally one of the most frequent causes of aviation claims – have declined. Joerg Ahrens, global head of Long-Tail Claims at AGCS, says grounded airline fleets might be exposed to damage from hurricanes, tornados or hailstorms.
While estimates vary, the insurance industry is currently expected to pay claims related to the pandemic of as much as $110 billion in 2020, according to Lloyd’s. AGCS alone has reserved about €488 million (US $571 million) for expected Covid-19 related claims, especially for the cancellation of live events and the disruption of movie or film productions in the entertainment industry.
“We have seen claims in some lines of business, such as entertainment insurance, surge during Covid-19, while traditional property and liability claims have been subdued during lockdown periods,” says AGCS Global Head of Claims Philipp Cremer. “There is still the potential for claims to occur as factories and businesses restart after periods of hibernation, and given the longer development patterns for third-party claims in casualty lines.”
Claims notifications from motor accidents, slips and falls or workplace injuries slowed as more people stayed at home, and with the temporary closure of many shops, airports and businesses during lockdowns across the world. AGCS said it noticed a positive impact on U.S. claims settlement from the suspension of courts and trials. Some claimants and plaintiffs have been more open to negotiating settlements out of court rather than opting to wait a long time until their case is scheduled. In general, claims activity is likely to pick up again following resumption of economic activity, the insurer predicts.
According to the report, Covid-19 is accelerating trends such as a growing reliance on technology and rising awareness of the vulnerabilities of complex global supply chains. Going forward, many businesses are expected to review and de-risk their supply chains and build in more resilience. This could involve some reshoring of critical production areas because of disruption caused by the pandemic. Such a move would likely impact frequency of claims and the costs of any future business interruptions.
Meanwhile, the growth of home working means that companies may have lower property assets and fewer employees on site in future, but there would be corresponding changes in workers` compensation and cyber risks. During the pandemic, cyber risk exposures have heightened, with reports of the number of ransomware and business email compromise attacks increasing. To date, AGCS has only seen a small number of cyber claims which are Covid-19 related.
Covid-19 has also reinforced the need for digitalization of claims handling. Remote claims inspections and assessments for tornados, floods or major industry accidents are now possible through satellite, drone or image capture technology and tools such as MirrorMe.
“Just a few years ago, claims processes were mostly manual and paper-based and many people could not have imagined handling claims remotely,” says Cremer.
*This story ran previously in our sister publication Insurance Journal.