COVID-19 Insights

Premium

• Reduction in volumes, particularly in the SME segment where businesses may not survive the shutdown or choose to reduce the level of insurance purchased or even cancel cover to preserve cash flow. This may leave some businesses exposed to fire and natural perils risk.
• Where premiums are a function of turnover, expect to see drops due to lower business revenues. This may come through lower adjustment premiums.
• Sectors with more pronounced COVID-19 related impacts include travel, retail, entertainment and hospitality. Business supporting essential services, such as supermarkets, agriculture, plumbers and builders appear to have been resilient so far.
• On 26 March, as part of a support package for SME customers, IAG announced deferred premium payments for up to six months for those experiencing financial hardships; refunds on the unused proportion of premiums for those who cancel their insurance, with no administration or cancellation fees. Allianz, Suncorp and QBE made a similar announcement on 3 April after the ACCC granted an interim authorisation for insurers to work together to implement COVID-19 relief measures.

Claims – Property (including business interruption)

• Limited direct impacts as majority of policies are likely to contain exclusions relating to losses caused by diseases notifiable under the Quarantine Act or the Biosecurity Act. Overseas there has been some pressure for insurers to pay business interruption claims despite pandemic exclusions; in the US in particular some State legislators have threatened to pass Bills to force insurance payments for COVID-19 related closures.
  • Property policies mainly cover losses from physical damage to the insured property from a covered peril. In the absence of physical damage from a covered peril, contingent business interruption / lost income would generally not be covered.
  • Property policies can include coverage for disease within a certain radius of the property. These covers are often subject to sub-limits and are more common for certain sectors such as retail and hospitality. Governmental/similar authority action (shutting down/ limiting access to the insured premises) is usually a pre-condition for coverage so a voluntary shut down, as a precautionary measure, taken by the business owner is unlikely to trigger the cover.
• Indirect impacts relate to changes in claims costs arising from changed business conditions because of COVID-19.
  • Disruptions in supply chains may lead to both delays and inflation in claims costs. China is a major manufacturer of building supplies and we might see inflation in claims cost as a result.
  • As a result of business operating at reduced capacity we would expect less machinery breakdown and fire claims.

Claims - Liability

• Liability claims arising from a perceived breach of duty of care in relation to visitors, contractors or those under care, especially in the hospitals, age care facilities, disability, schools, restaurants, airlines, cruise lines, supermarket sectors.
• Potential for new type of class actions alleging negligent response. In the US a couple has filed a lawsuit against Princess Cruise lines.  In Australia, the handling of the Ruby Princess has led to speculation around class actions against both the government and the cruise line.
• Some policies could see favourable claims impacts with less ‘slip & trip’ style claims due to reduced face to face interaction between businesses and their customers.
• Claims settlement activity is likely to be impacted, particularly with many courts and mediation conferences now being suspended and greater difficulty in obtaining ‘expert’ opinions. However some plaintiffs and their lawyers looking for cash flow may seek an earlier settlement and settle for lower amounts.

Premium

• Car sales are being impacted significantly (20% reduction in new car sales in March). This will lead to fewer new business opportunities in the coming months.
• Renewals and cancellations are likely to be impacted by consumers seeking better ‘value for money’ particularly as many insureds are using their vehicle less. Customers may also look to cancel, reduce their cover to Third Party, or look at PAYD options.
• Reduction in demand for taxi and ride share services will reduce premium in these small but not immaterial segments.
• Commercial motor portfolios would also see reductions in volumes and/or increases in policy cancellations, especially for hire cars.

Claims

• Public health containment measures mean less traffic on the roads with many people working from home (although there will be some offset to this by substitution of private vehicles for public transport) and fewer discretionary trips in the evenings and weekends. As a result of this reduced usage there will be fewer collision claims overall.
• There may be increased delays in reporting claims as insureds are reluctant to have vehicles repaired if they are drivable.
• Claim size pressure is upwards with supply chain and exchange rate impacts increasing the cost of parts as well as additional work on sanitisation of vehicles. Delays in repairs due to the unavailability of parts will lead to increased use of hire/courtesy cars, further increasing total claim costs.
• Recoveries are likely to reduce due to limited salvage opportunities, a higher proportion of uninsured drivers and a more challenging operational environment.

Premium

• Reduction in number of house sales in the short (to medium) term will impact new business opportunities.
• Increased price sensitivity may lead to more shopping, reduction in level of cover or cancellation of insurance.
• In late March we saw many insurers temporarily cease to offer ‘rent default protection’ cover in landlord’s insurance policies due to the uncertainty around potential government intervention into residential tenancy agreements. (We understand that landlord’s insurance make up approximately 10% of Home GWP nationally).

Claims

• In the short term, more people at home (isolation/ Work from Home measures) could lead to improvements in theft and other claims (burst pipes etc) that are less likely to occur, or be less severe if policyholders are at home.  These make up a relatively small proportion of total claims cost so impact would be minimal.
• Constrained capacity on supply chain combined with large scale natural disaster pose a material risk to insurers in terms of being able to service claims, likely leading to increases in claim sizes.
• Although there is some reprieve on most regulatory timelines, with the new GICOP taking effect on 1 July this year insurers will need to ensure their operations (particularly claims) are managed and delivered to the levels and timelines outlined within GICOP – a challenge that has been heightened by COVID-19.
• The government’s response to residential tenancy agreements and potential protections for tenants could have a material impact on ‘rent default’ claims for landlord’s insurers. The impact of these remains to be seen.