Corona could cost insurers more than $ 200 billion

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London The corona crisis will bring the insurance industry the biggest loss in its history. The insurance market Lloyd’s of London estimates that the cost could add up to $ 203 billion this year alone. The total is made up of $ 107 billion in insurance losses and $ 96 billion in investment losses. The insurance loss alone corresponds approximately to the costs of the hurricane years 2005 (“Katrina”, “Rita” and “Wilma”) and 2017 (“Harvey”, “Irma” and “Maria”).

The corona crisis was even worse because insurance damage and economic damage coincided at the same time and around the world, Lloyd’s boss John Neal told Handelsblatt. The industry is very well positioned to deal with natural disasters.

But it is extremely rare to experience such a combination of damage. The estimate is based on the assumption that the lockdown in large parts of the world will continue until the end of June and that the economy will run for the rest of the year due to limited capacity contact restrictions. Neal predicts that the crisis will continue to have an impact. “It will take two years before we can draw a line under Covid-19.”

In its own business, Lloyd’s initially anticipates payments of up to $ 4.3 billion by the end of June. Each additional quarter with lockdown would cost $ 1-2 billion, Neal says. So far, the total has been roughly equivalent to the cost of the September 11, 2001 terrorist attack, which cost $ 4.7 billion.

According to Neal, Lloyd’s suffers less than the competition because the company has only a small market share in the particularly badly affected business with business insurance. The largest items on the London marketplace are default and property insurance.

Credit insurance will also become an increasing problem in the coming months, Neal expects. It is difficult to predict the height. After the end of the lockdown and the gradual withdrawal of the state, an increasing number of bankruptcies can be expected.

No return to the pre-Corona period

Many companies worldwide insist on taking out business interruption insurance – even if it does not provide for pandemic protection. Politicians are also putting pressure on insurers.

When asked whether insurers should be accommodating to their customers, Neal declines. “All insurers can do is meet their obligations,” he says. “You can’t just tear up your contracts and pay the debts because the sums are incredible.”

If you just look at all of the small businesses in the United States, you’re talking about business interruption costs of $ 300 billion a month. No insurer could raise such sums. The governments are asked. As an example, he cites the federal government, which helps small restaurants.

Neal also expects fundamental changes in the organization of Lloyd’s. Typically, 5000 to 7000 insurance brokers populate the marketplace’s multi-story underwriting room, where complex insurance policies are arranged in person.

The trading hall is currently closed, and all business is conducted via the electronic platforms. It was going “very well,” said Neal. There was no decrease in volume. On the contrary: in times of crisis, demand even increases.

Neal sees no return to the pre-Corona period. It would also make sense in the future for brokers and underwriters, i.e. employees who underwrite the risks for the insurers, to meet in person. But you will see more of a mixture of “virtual and real”, says the CEO. As long as “social distancing” applies, the underwriting room cannot be opened again.

He currently believes opening is only possible in August at the earliest, but then only with significantly reduced staff. It is considered that only the underwriters are present and the brokers are added via video. Another option would be to treat different industries like shipping and aviation on different days. “We are currently considering all options,” says Neal.

More: Lloyd’s of London – How a 330-year-old insurance exchange with start-ups is reinventing itself

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