The world’s biggest insurance market, Lloyd’s of London, expects to pay out between $3bn and $4.3bn in coronavirus claims. This will mean it’s the biggest payout since the September 11 attacks in 2001.
These losses could continue to rise should the current lockdown continue into the next quarter. They have also warned that Coronavirus could cost the entire insurance industry $203bn.
Who are Lloyd’s of London?
Lloyd’s of London, or just Lloyd’s, is an insurance and reinsurance market based in London. It’s the largest insurance marketplace in the world.
Lloyd’s is not an insurance company, rather a market where buyers and sellers come together. It also acts as a regulator, stetting rules under which its members operate.
Lloyd’s of London has five key participants;
- Managing agents
- Cover holders
- Insurance buyers
How much is the Coronavirus outbreak going to cost Lloyd’s of London?
It is expected that the Coronavirus pandemic will cost Lloyd’s of London between $3bn to $4.3bn in claims.
The scale of this is equivalent to other big claims years for insurers. This includes the $4.7bn in the aftermath of the 9/11 terrorist attacks as well as hurricanes Harvey, Irma and Maria. The three hurricanes combined cost $4.8bn
However, it is thought that this will increase should the current lockdown restrictions continue. If these extend beyond the second quarter, then this wold likely increase the claims to between $1-2 billion more than the current estimate.
How much will Coronavirus cost the insurance industry?
The insurance industry as a whole is estimated to face around $107bn in underwriting losses this year.
Insurers have also seen a slump in the value of their investments which they use to pay claims. This loss is around $96bn which means that the total loss could amount to $200bn.
The Lloyds of London chief executive, John Neal, has said that the pandemic is an unparalleled event;
‘What makes Covid-19 unique is not just the devastating continuing human and social impact, but also the economic shock’
The ‘good news’ however, is that Lloyd’s are confident they can fulfil their obligations to all customers.
Where are the claims coming from?
Nearly a third of insurance claims are expected to come from event cancellations and postponements. This includes global events including the Tokyo Olympics. One of the most notable claims comes from the All England Lawn Tennis & Croquet Club, who host Wimbledon every year, as they are one of the few businesses that had actually taken out pandemic insurance.
It has been said that 15% of the claims come from the UK, with the remainder coming from the rest of the world.
Other major categories include business interruption claims. However, it is this type of insurance that has caused the most issues for both businesses and insurers. It is thought that up to $1.4bn has already been paid out despite many businesses not being covered.
However, many insurers say most small businesses are not covered in the event of a pandemic, and therefore are refusing to pay out. As a result, small businesses are at loggerheads with insurers. Some businesses owners have gone one step further, and are taking insurer Hiscox to court over the matter. Governments and regulators worldwide have also stepped into to potentially resolve the matter, including our own FCA.
How are Lloyd’s of London preparing for the future?
The pandemic has made many businesses evaluate how they work in the future, and the insurance industry is no different.
In light of the events of the past few months, Lloyd’s have put together some ideas for how they can play a part in the recovery. One of these ideas is Recover Re, which will deal with long-term difficult crises that may have a short-term spike in hardship. A fear for Neal is that many insurers are buying less insurance when they should be considering buying more.
The true costs of the coronavirus on the insurance industry may not be known for a while. If we continue to have waves of the pandemic, then the cost could continue to increase for years to come.