Analysis Sees US, UK Insurer COVID-19 Losses Exceeding $32 Billion

A "moderate" loss scenario for property-casualty insurance lines most likely to be affected by COVID-19 in the US and UK markets could reach $32 billion, according to an analysis by Willis Towers Watson, while a "severe" scenario projects $80 billion in losses.

The moderate scenario is based on up to 6 months of social distancing, while the severe scenario is based on up to 12 months of social distancing. An "optimistic" scenario based on 3 months of social distancing and the spread of the disease controlled relatively quickly envisions $11 billion in losses.

Willis' "Scenario Analysis of the COVID-19 Pandemic" includes an additional "limited success" scenario that envisions approximately $140 billion in losses across the classes modeled, driven primarily by US workers compensation and general liability insurance.

The limited success scenario assumes social distancing initiatives have some impact on the pandemic, but that the spread of COVID-19 resumes when controls are lifted and that controls are abandoned after 3 months due to the catastrophic economic impact with the disease's spread ultimately slowed by the development of global herd immunity.

Insurance lines considered in Willis' analysis include business interruption, contingency, directors and officers, general liability, trade credit, and workers compensation. The analysis also considers the offsetting effect of reduced US and UK auto losses.

"With the world heading towards a recession, the length of which in our scenarios ranges between 6 months and 3 years, with falling payroll, [gross domestic product], global trade, and travel, it has never been more important for insurers to perform a strategic assessment of their portfolios," the Willis report said. "Expected falls in premium income opportunities, combined with changing risk profiles, will challenge any insurer's pre-COVID-19 business plans. We see strategic portfolio management as a major area of focus to achieve adequate returns, and indeed profitable growth, over the next 3 years."