The pandemic will cost the insurance industry over US$200 billion (NZ$336 billion), according to Lloyds of London, who estimated that its own payouts are now on a par with the Sept. 11, 2001 attacks or the combined impact of hurricanes Harvey, Maria and Irma in 2017.
Lloyds, which as an insurance market pays out to insurers affected by disasters, said it expects to pay between $3 billion and $4.3 billion to insurance companies to help them cope with the COVID-19 pandemic.
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Losses could widen if lockdowns continue into the next quarter, which would push the overall cost to the insurance industry to $203 billion. Unlike the storms, for example, the pandemic's impact is global, systemic and long term.
"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 insurance non-life industry is likely to be far in excess of those historical events," the London-based insurance market said.
The study undertaken by Lloyds assumed social distancing and lockdown measures through 2020, as well as the forecasts for the drop in gross domestic product globally.
"What makes COVID-19 unique is not just the devastating continuing human and social impact, but also the economic shock.'' Lloyd's Chief Executive John Neal said. "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."
Way of the future?
Insurers could provide pandemic cover in the future to help individuals and businesses get back on their feet faster should another major event affect New Zealand, the head of New Zealand's general insurance body says.
Tim Grafton, chief executive of the Insurance Council of New Zealand, the industry body for insurers who provide home, car and contents insurance, said insurers would be looking to deploy their expertise to develop new products.
"As we prepare for the future, insurers will have the opportunity to deploy their risk expertise and learnings from Covid-19's impacts to develop products for their customers and work with governments to reduce the impact of the next global pandemic."
Business interruption insurance does not currently cover pandemics which is why businesses have not been able to claim for the Covid-19 shutdown unless they had a specific pandemic clause in place.
Grafton said most policies had exclusions for pandemics and infectious diseases or if infectious diseases were included it would only have been named diseases, not previously unknown ones like Covid-19.
But now the world had recognised what a pandemic does there would be an appetite for insurance to play a role, he believed.
"It is only too clear how expensive a pandemic can be."
- Associated Press and NZ Herald reporter