Lloyd’s of London expects to pay out between $3 billion and $4.3 billion (£2.46 billion and £3.52 billion) to cover claims arising from the Covid-19 pandemic.
The cost of Covid-19 claims to the world’s largest insurance and reinsurance market will be on par with 9/11 in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2017.
An economic study of potential losses examined underwriting losses through the profit and loss account at Lloyd’s, as well as the reduction in the value of investments that insurers hold to fund future claims payments.
It also assumed a base case epidemiological scenario of continued social distancing and lockdown measures throughout 2020, as well as the forecast drop in GDP globally.
The estimated 2020 underwriting losses covered by the insurance industry as a result of Covid-19 are approximately $107 billion (£87.61 billion), on par with some of the biggest major claims years, such as when three catastrophic windstorms have struck (2005: hurricanes Katrina, Rita and Wilma; 2017: hurricanes Harvey, Irma and Maria).
Importantly, these natural catastrophes were geographically contained events, occurring over the course of hours and days—and so vastly different in nature to the global, systemic and longer term impact of Covid-19.
In addition, unlike other events, the insurance industry will also experience falls in investment portfolios of an estimated $96 billion (£78.62 billion), bringing the total projected loss to the insurance industry to $203 billion (£166.24 billion).
John Neal, chief executive officer of Lloyd’s, said: “The global insurance industry is paying out on a very wide range of policies to support businesses and people affected by Covid-19. The Lloyd’s market alone is currently expected to pay claims amounting to some $4.3 billion, making it one of the market’s largest pay-outs ever. 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.”
Reacting to the study, Christopher Croft, chief executive officer of broker representative body the London & International Insurance Brokers Association, urged the insurance industry to avoid focusing too closely on underlying numbers.
He 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.”
Neal revealed that Lloyd’s is also working in other areas to “support business and society through this incredibly difficult time”.
He said: “In addition to our £15 million 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