After SARS, many insurers were caught holding the bag on unavoidable losses. Since then, most companies have updated their policies to make clear that a viral outbreak should be considered force majeure, or an “act of God.” Force majeure serves to preclude coverage in most cases.
However, some insurers will still have policies that need to take coronavirus into account. Some may see large losses, while others may actually see new business. Here are five areas where insurers could see an impact from the virus:
The 2003 SARS outbreak increased business for health insurance companies as more people sought coverage, especially in Asia. A company like Prudential Plc could stand to benefit, as it did in the first nine months of 2003, when it saw a 17% increase in new business. Moreover, insurers in Asia may see some help from the government, according to a recent Moody’s note.
Events insurance may see some losses as more and more events are canceled due to the virus. “The largest event taking place is the Tokyo Olympics in July 2020. Industry experts anticipate coverage of approximately $2 billion for this event,” reads a recent Fitch Ratings note.
“With conferences and sporting events,” notes a Morningstar analyst, “generally, you’ve got tight windows and, if you miss them, that could be the end of it for a year or two.”
Travel insurance companies could take a hit, but it’s unlikely to be a big one. Most losses caused by epidemics are excluded unless the traveler took out additional disruption coverage. However, Allianz and AXA SA, at the least, have temporarily waived that condition for certain claims.
Credit insurance providers could see a potentially large impact from the coronavirus, especially if the outbreak continues for some time. Credit insurance provides coverage to companies when the firms they do business with end up failing, and that could happen if the outbreak lasts long enough.
If there’s a major pandemic, reinsurance could take significant losses. However, many clients don’t have pandemic risk covered by their reinsurance policies. Munich Re notes that it has about $556 million exposed to contingency losses. However, it sees its overall risk as limited as long as the pandemic doesn’t get too bad.
Overall, insurers’ greatest financial risk could come from falling markets. The coronavirus has created upheaval across the markets and could contribute to a major economic slowdown. That could have a negative effect on business volumes and profitability.