Have increased pandemic insurance claims affected insurers?

7 October 2020: Writing for the Financial Services Faculty, Vincent Huck looks at how insurers have handled the rise in claims since the start of the pandemic.

The COVID-19 crisis has affected all business sectors, but it has put insurers in the spotlight as claims rise under different types of insurance. 

But as the H1 reporting season comes to an end, it becomes apparent that so far, the crisis has affected insurers – of all lines of business – on their investments rather than their underwriting activities.

Lessons learned from the 2003 SARS epidemic has meant most non-life firms had provisions for these types of events. Lower-than-expected mortality rates, however controversial the different estimates are, has meant lower claims than might have been anticipated. 

Central bank actions

Nevertheless, central bank actions to dampen the financial crisis caused by the pandemic have artificially maintained stock market stability and prolonged a low-interest-rate environment for an indefinite period. 

Insurers have suffered from years of low-interest, or in some cases, negative, interest rates. This makes it difficult for them to manage the asset-liability mismatch, where their investments do not grow enough to cover any claims made on their policies.

This means there is a spread between the guaranteed rates they provide to their policyholders and the interest of their investments.

Faced with ‘nowhere to hide’, it is probable that the trend of insurers investing in illiquid, higher-yielding alternative assets, such as real estate and private debt, will increase.

If Q1 was marred with uncertainty and financial results looked bleak, a rebound in Q2 seems to suggest there is a light at the end of the tunnel.

Provided claims do not increase significantly and that insurers and their asset managers navigate prudently the choppy waters of financial markets, the insurance industry should prove its resilience. 

You can read about this in more detail here.