CEO John Neal said the coronavirus crisis “will challenge the industry as never before”

Lloyd’s has revealed that it has estimated it will be paying out between $3bn and $4.3bn in claims related to the Covid-19 crisis.

The market  said this is on a par with 9/11 in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2017. Lloyd’s said that these losses could still rise further, however, if the current lockdown continues into another quarter. 

And Lloyd’s believes that once the scale and complexity of the social and economic impact of Covid-19 is fully understood, the overall cost to the global non-life insurance industry is likely to be far in excess of those historical events. 

Lloyd’s chief executive John Neal said that the impact of the coronavirus pandemic represented an unprecedented challenge for the insurance industry.

“The global insurance industry is paying out on a very wide range of policies to support businesses and people affected by Covid-19,” he said. “The Lloyd’s market alone is currently expected to pay claims amounting to some $4.3bn, 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.”

Economic Study

An economic study carried out by Lloyd’s looked into both the underwriting losses to be experienced through the profit and loss account, as well as the reduction in the value of investments that insurance companies hold to fund future claims payments.

It also took into account the current payout estimates assuming continued social distancing and lockdown measures through 2020, as well as the forecasted drop in global GDP.

Lloyd’s estimated that underwriting losses as a result of Covid-19 will total approximately $107bn, on par with some of the biggest major claims years for the industry, such as when hurricanes Katrina, Rita and Wilma hit in 2005, or when hurricanes Harvey, Irma and Maria struck in 2017.

The difference with coronavirus, however, is that these natural catastrophes were geographically contained events, occurring over the course of hours and days – vastly different in nature to the global, systemic and longer-term impact of Covid-19. 

In addition, unlike other events, the industry will also experience falls in investment portfolios of an estimated $96bn, bringing the total projected loss to the insurance industry to $203bn. 

Wider Support

Responding to the estimate from Lloyd’s, Christopher Croft, chief executive of broker representative body LIIBA, said it was important to not get lost in the numbers and lose focus on the impact coronavirus is having on clients.

“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,” he said. “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.”

Lloyd’s is already drawing on its pool of experts to create new policies to support the immediate health response as well as the longer-term exit strategy, including the search for diagnostics, treatments and vaccinations.

One Lloyd’s syndicate is already insuring more than 100 individual clinical trials taking place around the world investigating all stages of Covid-19.

And Neal revealed that the Lloyd’s market is also repurposing existing innovation initiatives in its Innovation Lab and Product Innovation Facility to help fast track development of insurance products to support the response to Covid-19.

“Alongside making record payouts, we have been turning our attention to what more we can do to support business and society through this incredibly difficult time,” he said. “In addition to our £15m package of charitable donations, we have set aside £15m in seed capital to explore how the industry can create or house structures that 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 and economic recovery in the short, medium and long-term.” 

Lloyd’s plans to announce a series of further initiatives in the coming weeks as it continues to work with government, industry and business to support the short, medium and long-term response to the coronavirus crise.

One initiative under consideration includes establishing a ‘Recover Re’ insurance vehicle offering “after the event” cover for pandemic related business recovery, including the current Covid-19 pandemic.