COVID-19 is one of the largest economic loss events in history for companies and insurers alike. However, it’s not only the magnitude of the impact which is unprecedented. Claims trends and risk exposures are likely to evolve in both the mid- and long-term as a result of the pandemic.
With the reduction in economic activity during lockdown phases, traditional property and liability claims have been subdued, most notably in the aviation and cargo sector, but also in many other industries with fewer accidents at work, on the roads and in public spaces, according to a new report Covid-19 – Changing Claims Patterns from Allianz Global Corporate & Specialty (AGCS).
Property damage claims were not significantly impacted by COVID-19 as loss drivers such as weather are not correlated. However, as production lines restart and ramp up, this can exacerbate the risk of machinery breakdown and damage and even fire and explosion.
In addition, with fewer people potentially onsite, inspections and maintenance may be delayed or loss incidents such as a fire or escape of water may be noticed too late, increasing the severity of damage.
COVID-19 has caused business closures and disruptions globally — which often may not be covered in the absence of physical damage as trigger of coverage. However, the pandemic has impacted the settlement of standard business interruption (BI) claims in different ways.
Manufacturers across the Asia Pacific vary widely in the journey through the COVID-19 pandemic. China is broadly beginning to restart its operations amid recovering domestic demand, while other markets like Southeast Asia, Japan and South Korea are still tackling cases and factories remain under a range of controlled measures to stop the spread.
To date, AGCS has only seen a few liability claims which are COVID-19 related. However, liability claims are typically long-tail with a lag in reporting, so general liability and workers’ compensation claims related to Covid-19 may yet materialize. A number of outbreaks of coronavirus have been linked to high-risk environments such as gyms, casinos, care homes, cruise ships or food/meat processing plants.
A wave of insolvencies, as well as event-driven litigation, could be potential sources of D&O claims. To date, only a relatively small number of securities class action lawsuits related to COVID-19 have been filed in the United States, including suits against cruise ship lines that suffered COVID-19 outbreaks.
The pandemic could trigger further litigation against companies and their directors and officers, if it is perceived boards failed to prepare adequately for a pandemic or prolonged periods of reduced income.
COVID-19 is accelerating many trends such as a growing reliance on technology and rising awareness of the vulnerabilities of complex global supply chains. Going forward, many businesses are expected to review and de-risk their supply chains and build in more resilience.
Meanwhile, the growth of home working means that companies may have lower property assets and fewer employees on site in future, but there would be corresponding changes in workers` compensation and cyber risks.
During the pandemic cyber risk exposures have heightened, with reports of the number of ransomware and business email compromise attacks increasing. To date, AGCS has only seen a small number of cyber claims which are COVID-19 related however.
Read more: Prop Tech and the Pandemic