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Survey Report

Scenario analysis of the COVID-19 pandemic

Analysis of key classes in the US and UK (including London markets) P&C insurance industries

By Richard Clarkson , Christopher Bozman and Will Shuter | May 1, 2020

In this report, we present the impact of different pandemic outcomes and economic scenarios on P&C insurance in the US and UK, including the London market.
Insurance Consulting and Technology
COVID 19 Coronavirus|Insurer Solutions

The COVID-19 pandemic presents a rapidly developing situation for insurers. In this report we produce an initial estimate of the financial impact to the insurance industry for key impacted lines of business/geographies and outline a framework to assist insurers to manage their business during these challenging times. Our focus is on the US and UK markets, where the UK market includes that business transacted through the London Market.

This represents an early attempt to understand the different dynamics affecting insurers. Our efforts at quantification should provide directional insights and illustrate relative orders of magnitude around this event. However, they should not be considered as point estimates and are almost certainly going to change as more information becomes available. Each section of the report sets out different elements of our framework, built up logically with a range of scenarios assessing potential impacts by line of business, and finally, with suggested mitigating activities that could be undertaken for insurers.

In Section 1 we share our overall estimate of the potential COVID-19 insured losses across a range of pandemic scenarios, with loss estimates provided for those insurance classes that we expect to be materially affected by COVID-19. These comprise US and UK Business Interruption, Contingency, Directors & Officers, General Liability, Trade Credit and Workers Compensation. Additionally, we estimate the potential offset effect from US and UK Motor classes.

Based on our ‘Moderate’ scenario (six months of social distancing) we estimate there could be US$32 billion of COVID-19-related insured losses...

Based on our ‘Moderate’ scenario (six months of social distancing) we estimate there could be US$32 billion of COVID-19-related insured losses from the adversely affected lines and geographies we have quantitatively reviewed.

Where an insurer has a large motor book, especially in the US, their COVID-19 losses will likely be mitigated as a result of an expected reduction in motor-incurred claims. This is manifesting in mono-line motor insurers offering significant premium rebates.

Our scenario-based approach is described in Section 2. The scenarios used are based on epidemiological models developed by our Life Insurance experts and informed by the latest mortality information. Each scenario includes the assumed duration of social distancing (3, 6 or 12 months) and an estimate of the economic impact; including forecasts of the length of the resulting economic recession and timeframes on how long GDP will take to recover to ‘pre-COVID’ levels.

The scenarios have been applied in Section 3 to offer thought-provoking insights on a class-by-class basis for property and casualty (P&C), as well as in Section 4 for UK life. Each section has been designed to offer the reader a range of possible loss drivers and premium impacts, for which we offer initial quantifications for those that are most affected.

  • Economic losses – associated with COVID-19 that insureds will seek to recover, including BI, contingency, construction, marine, aviation, trade credit, political risks, surety, mortgage and income protection. The impact on BI and contingency is most difficult to assess given the lack of data on types of policy wording, inner limits and use of exclusions.
  • Traditional liability – Arising from insured’s actions (or inactions) in response to the COVID-19 threat including (for example) any mismanagement of their responsibilities to either the general public, their employees or investors. We consider the impact on US general liability, US employment practices liability, marine, aviation, US medical malpractice, and US directors and Officers. In addition to liability coverages we also consider the impact on workers compensation.
  • Temporarily changed exposures – as a result of changing behaviour by insureds. Classes particularly impacted are US and UK motor, travel, marine, political risk, trade credit and surety as well as changes to the base mortality in annuity.
  • Reduced premiums – as a result of either the insured’s premium being exposure-rated or the insurer offering ex gratia premium rebates. Classes potentially seeing reduced premiums include US and UK motor, US workers compensation, general liability, travel, marine and aviation. In these classes, insurers will face the challenge of managing their fixed cost bases in the context of lower premium income.

While lines and geographies beyond those analysed in this report will experience differing levels of disruption, our scenario approach creates an estimation framework for (re)insurers to work within to quantify these impacts too.

Finally, in Section 5 we offer some ideas on areas in which insurers can take practical actions, either in the short or medium term, such as an immediate impact assessment on reserves, portfolio management and pricing considerations as well as balance sheet and capital considerations.

With the world heading towards a recession, the length of which in our scenarios ranges between six months and three years, with falling payroll, GDP, global trade and travel, it has never been more important for insurers to perform a strategic assessment of their portfolios. Expected falls in premium income opportunities, combined with changing risk profiles, will challenge any insurer’s pre-COVID-19 business plans. We see strategic portfolio management as a major area of focus to achieve adequate returns, and indeed profitable growth, over the next three years.

We hope you find this report helpful in assisting you to navigate your business through these challenging times. As circumstances change and more information becomes available, we may look to update this report. However, if you have questions or issues that you’d like to discuss please feel free to reach out either to the contacts listed in the appendix of this report or to your usual Willis Towers Watson, Insurance Consulting and Technology contacts.


Richard Clarkson
Head of London Market Consulting
Insurance Consulting and Technology

Christopher Bozman
Senior Director
Insurance Consulting and Technology

Will Shuter
Senior Consultant
Insurance Consulting and Technology

Title File Type File Size
Scenario Analysis of the COVID-19 Pandemic PDF 3 MB
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