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The impact of COVID-19 on U.S. insurers and reinsurers a year on

Insurance Consulting and Technology
COVID 19 Coronavirus|Insurer Solutions

By Christopher Bozman | June 17, 2021

While U.S. insurers’ expected losses from the COVID-19 pandemic may be less than anticipated a year ago, what can we glean from the latest data and loss development patterns?

Just over a year ago, we published estimates of the likely impact of the COVID-19 pandemic on different lines of insurance business in the U.S. and U.K. (including London) insurance markets (Figure 1). One year later, the general picture is that U.S. insurers’ and reinsurers’ losses are likely to be at the optimistic and moderate end of the scales we originally set out.

The chart shows estimates for expected insurance business line loses caused by the pandemic from our May 2020 survey report Scenario Analysis of COVID-19 Pandemic
Figure 1: Willis Towers Watson estimates of COVID-19 impacts from April 2020

Source: Scenario Analysis of COVID-19 Pandemic – May 1, 2020

Our updated assessment for selected U.S. lines of business that I presented at the Casualty Actuaries Society Reinsurance Seminar in June is:

  • Property and business interruption (BI) – better in the U.S., but neutral overall. U.S. court rulings to date have generally been more favorable to insurers than in the U.K., although more potential exposure exists where virus exclusions aren’t in use.
  • Liability – early to tell but looks positive with limited impact on 2020 loss ratio. Reductions in frequencies on premises exposures have been more significant than premium reductions.
  • Workers compensation (see below) – trending toward optimistic scenario; but likely to be loss ratio neutral overall.
  • Directors’ and officers’ liability (D&O) – tracking in line with the optimistic scenario; but exposures continue into 2021 as companies return to normal.
  • Mortgage – appears a relative non-event for insurers; thanks to a combination of government assistance, rising home prices, a rebound in employment and most people being able to resume payments on delinquent mortgages.

A closer look at workers compensation

Drilling down further, we’ve done more detailed modeling of likely workers compensation losses, and we now are projecting a business line loss of about $6.8 billion for the 2020 accident year. Of this figure, we expect severe infections to account for most of the loss (Figure 2), recognizing also that significant unknowns remain about the ultimate severity of these claims. The model also breaks down expected claims by state and by type of worker, within which it’s unsurprising that the majority of claims are expected from healthcare workers.

58.8% of claims were severe, 25.7% were moderate, 12.1% were fatal and 3.3% were mild
Figure 2: Proportion of 2020 accident year ultimate claims costs by infection severity

Source: Willis Towers Watson modelling

Issues for reinsurers

While these general patterns will clearly affect reinsurers too, some additional specific issues are also becoming apparent. Among these is that business interruption (BI) and contingent BI account for most of the losses to date. Moreover, for BI in particular, reinsurers have additional quantification challenges, due to a lack of applicable catastrophe models and uncertainties around coverage issues.

Another potential reinsurance issue involves the possibility of severe workers compensation losses, and the potential for workers compensation catastrophe treaties being hit, depending on the contractual language on aggregation. Similarly, clash covers may come through despite limited evidence to date. While social distancing and the economic slowdown have caused frequency reductions in many lines, reinsurers should pay close attention to offsetting severity trends that could affect excess layers.

Judging prolonged effects

For primary insurers and reinsurers alike, a tricky part of the COVID-19 puzzle related to insurance is the potential for longer-term distortion of loss development patterns. Despite the uncertainties, these are issues that reserving and pricing actuaries have to consider now.

Examples include the effect of court closures on claim adjudication and resolution, delays in access to care for claimants, the impact of employees working from home more, and changes in the future pace of claims resolution and settlements in some business lines.

Solutions may need to reflect alternative weighting and lag development in analysis of future claims. Meanwhile, insurers will need to make judgments on factors such as potential deterioration in medical condition of claimants, extension of periods of disability, and where and how claims process costs will re-stabilize in a post-pandemic market.

We still have a way to go before the COVID-19 pandemic fully ends. Until then, and for some time afterwards, insurers and reinsurers will need to stay alert to the possibility of further changes in trends, loss development and post-pandemic exposures.


Christopher Bozman
Senior Director
Insurance Consulting and Technology

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