Covid-19 has hit the insurance industry just as hard as the 2008 global financial crisis. But with the global economy hit even harder this time around, insurers are setting themselves up for a quicker return to growth than many may anticipate

By insight editor Matt Scott

The Covid-19 pandemic has not been good for the insurance industry, both financially and reputationally.

The motor and home insurance markets aside, claims have generally gone up and premium volumes have struggled to maintain any semblance growth.

The UKGI market has also been rocked by the business interruption (BI) furore, with the FCA’s test case finding against insurers, meaning that, unless there is a successful appeal, the industry will be on the hook for thousands of BI claims across the country.

And even a successful appeal will do little to alleviate the reputational damage that has already been done.

But despite all these challenges, the insurance industry may actually be better placed to bounce back strongly than we all think.

Research from Swiss Re has found that the decline in global insurance premiums experienced across 2020 so far is comparable to the dip seen in the wake of the 2008 global financial crisis. But the estimated economic contraction in the wake of Covid-19 is much larger than in 2008, with the global economy shrinking by 4% this year, compared to just 1.8% in 2008-09.

And Swiss Re says that while there is currently nothing on the horizon pointing to a fast bounce back in economic output, this means that insurance markets are “more likely to bounce back quicker and harder than what global economic indicators would currently seem to imply”.

A hardening market is also set to help here, with increasing premiums likely to offset and exceed the decline in premiums as a result of less business activity.

Across 2019, commercial lines insurers had already reported double-digit price increases for a number of lines, fuelled by rising claims and decreasing capacity as a number of insurers exited major lines of business.

And this is set to act as a boost for the market as we move into 2021. Indeed, Swiss Re is anticipating a 3.8% increase in non-life premiums next year.

So while times are certainly not good for the insurance market, they may not be as bad as they seem, and certain tailwinds are already starting to blow. Insurers will now be hoping they can help steer the industry back onto a more prosperous path for the future.

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