Navigating the New Normal: COVID-19's Impact on Commercial Insurance

The Financial Toll of COVID-19 on Commercial Insurance

The COVID-19 pandemic has had a profound impact on the commercial insurance industry, with estimates of global claims ranging from $50 billion to $107 billion in 2020. Lloyd's of London projected the higher end of this spectrum, while analysts from Berenberg bank offered a more conservative estimate. However, Allianz's recent paper suggests that the financial implications are just one aspect of the story. The pandemic has also catalyzed significant shifts in risk patterns and loss causes, which could herald more disruptive changes in the years to come.

Shifting Risk Profiles and Industry Exposures

The pandemic has altered risk profiles across various sectors. For instance, the aviation industry saw a material reduction in claims due to reduced air travel. Conversely, the increased reliance on technology and remote work has heightened vulnerability to cyber-attacks. Hygiene standards and social distancing measures have improved risk profiles in some industries but have also introduced new risks, such as increased error rates in production processes. Business interruption claims unrelated to COVID-19 decreased in many cases, but COVID-19 containment measures led to longer disruptions and more costly claims in others.

Rethinking Supply Chains and Emerging Claims

Allianz highlights the ongoing rethinking of global supply chains to enhance operational resilience. Companies are exploring options like parallel supply chains and reshoring to mitigate risks. This shift will generate demand for new insurance solutions and introduce new claims scenarios. Additionally, potential claims could arise from long-tail lines such as directors and officers (D&O) or professional liability, as well as workers' compensation, if negligence in protecting against the coronavirus outbreak is perceived.

In conclusion, the COVID-19 pandemic has not only led to significant financial losses for the commercial insurance industry but has also reshaped risk profiles and supply chain strategies. To navigate this new normal, businesses should consider diversifying their supply chains, enhancing cybersecurity measures, and reviewing their insurance coverage to address emerging risks.