Willis Draws COVID-19 Insurance Loss Picture: It’s a Wash or Historic Failure

Willis Towers Watson | May 08, 2020

  • Willis Towers Watson projects will see a $51 billion reduction in claims costs this year, while returning an estimated $16 billion to consumers through refunds.

  • Refunds estimated so far are estimated at $10 billion and insurers will likely kick more back to customers if stay-at-home orders continue.

  • COVID-19 may add $16.7 billion to U.S. workers’ compensation losses and increase losses in the U.S. and U.K. by $11 billion for business-interruption.


If the novel COVID-19 pandemic is brought under control soon, the disease’s impact on the insurance industry as a whole may be pretty much a wash.

It not, the industry may be on the verge of an historic catastrophe.

A report by Willis Towers Watson projects that personal and commercial auto insurers in the United States and United Kingdom will see a $51 billion reduction in claims costs this year, while returning an estimated $16 billion to consumers through refunds. Refunds estimated so far are estimated at $10 billion and insurers will likely kick more back to customers if stay-at-home orders continue, the analysis says.

On the other hand, COVID-19 may add $16.7 billion to U.S. workers’ compensation losses and increase losses in the U.S. and U.K. by $11 billion for business-interruption and event-cancellations, $4 billion for credit and sureties, $1.5 billion for employment practices liability and $1.5 billion for directors and officers insurance, the report says.
 

Read More: PUSH TO CLAIM COVID-19 BUSINESS INTERRUPTION COVERAGE FAILS IN D.C.
 

Calculating the net decrease in losses for auto ($35 billion) and comparing that to the sum of the increased losses in the other lines ($34.7 billion) results in the two numbers pretty much cancelling each other out.
 

Moderate Scenario

Those projections follow Willis’ “moderate scenario,” which assumes that four months of strict and two months of light social distancing will be effective at controlling the spread of the novel coronavirus fairly quickly. The moderate projection also assumes economic growth will resume before this fall and consumer confidence will return by winter.

There are reasons to be skeptical as to whether strict social distancing will last that long. As of Friday, more than half of the U.S. states had allowed some businesses to reopen. In Georgia, consumers can even go get a tattoo or a haircut.
 

Severe’ Scenario

If a “severe” scenario projected by Willis plays out, the insurance industry could be in dire straits. While social distancing will reduce U.S. and U.K. auto claims by $77 billion, the pandemic could increase costs for other lines — primarily workers’ compensation and general liability — by $140 billion. That is more than a third of the entire $365 million in premiums reported by U.S. property and casualty insurers in 2018.

The severe scenario assumes that social distancing lasts for 12 months and a global economic contraction continues until early next year.

For true doomsday believers, Willis offered a “limited success” scenario that assumes governments lift social distancing rules after three months because of the catastrophic economic cost and the virus spreads until finally controlled by “herd immunity.” If that plays out, Willis projects $92 billion increase in workers’ compensation losses, a $27 billion increase for general liability and $22.7 billion more in event cancellation losses, as well as increases in losses to other lines.
 

Optimistic’ Picture

Willis also offers an “optimistic” scenario for those who see the glass as half full. That assumes government mitigation measures are highly effective and are able to control COVID-19 within three months, while consumer demand for get-away time returns within four months. In that case, auto claims drop by only $28 billion, offset by an additional $1.1 billion in business interruption and event cancellation claims and $600 million more for directors and officers claims. A $3.3 billion increase in workers’ compensation claims from the health care sector is largely wiped out by a $3.1 billion decrease in claims from workers outside of health care in the optimistic scenario.

“We have not associated probabilities with these scenarios, but we we regard all of them as possible and at his point should not be considered extreme tail scenarios (although some of them may have been before the COVID-10 outbreak),” the report says.
 

Workers’ Comp Losses

Workers’ compensation line will suffer the greatest losses from the pandemic compared to other lines in each of the scenarios. Ultimate losses will vary greatly depending on how many workers are infected, and what share of those who’re infected must be hospitalized or eventually die.

Willis estimated that each COVID-19 claim will bring $35,000 in medical treatment costs and $3,000 in temporary disability. Some of those will be death claims that cost an average of $1 million for physicians and $750,000 for other health care workers, the study says.

In its moderate scenario, Willis assumed that 20% of hospital-employed physicians and nurses will be infected and 12.5% of other healthcare workers will be infected. That amounts to 1.1 million infected workers, with. 9.5% of them requiring hospitalization and 9,300 of them dying from the disease.
 

Read More: TEXAS FARM BUREAU INSURANCE TO REFUND OVER $20 MILLION TO AUTO INSURANCE CUSTOMERS
 

In the worst-case, “limited success” scenario, Willis projects a 75% infection rate for all health care workers, resulting in 7.9 million cases and 129,000 deaths.

The broad range of scenarios that Willis included in the report mirrors an analysis released earlier this month by the National Council on Compensation Insurance. That report projected losses ranging from $2 billion to $81 billion, depending on infection rates and the number of claims that are deemed to be compensable.

In conclusion, Willis said the cumulative impact of the pandemic could “substantially exceed” losses from the Sept. 11, 2011 terrorist attack on the World Trade Center. Along with those losses, the industry faces a serious risk that its reputation will suffer, the report says.


A good portion of these losses will probably be considered to have been unintended, arising from broad wordings in smaller commercial policies, It will also beg a question however as to the full extent this should be transferred into the industry, which after all exists to provide continuity for just this type of event.

- A report by Willis Towers Watson projects.


About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has more than 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance.
 

Spotlight

Challenge to change is a three-part whitepaper series that explores the future growth drivers of the global Insurance industry. The papers, entitled Embracing change, The impact of technology and The future of insurance, look at the economy, regulatory landscape, technological innovation, business process, workforce and talent issues, and many other areas. They examine the drivers, opportunities and challenges of an incredibly rich and evolving sector. The Challenge to change series is for multiple insurance businesses - from life to property and casualty, large commercial to long term care - across multiple delivery channels and operations types. It is designed to be an important discussion tool to facilitate strategic thinking about how to create new business opportunities and respond to challenges positively.

Spotlight

Challenge to change is a three-part whitepaper series that explores the future growth drivers of the global Insurance industry. The papers, entitled Embracing change, The impact of technology and The future of insurance, look at the economy, regulatory landscape, technological innovation, business process, workforce and talent issues, and many other areas. They examine the drivers, opportunities and challenges of an incredibly rich and evolving sector. The Challenge to change series is for multiple insurance businesses - from life to property and casualty, large commercial to long term care - across multiple delivery channels and operations types. It is designed to be an important discussion tool to facilitate strategic thinking about how to create new business opportunities and respond to challenges positively.

Related News

INSURANCE TECHNOLOGY

Innoveo Skye® Selected by 5th Largest Insurer in UAE, Emirates Insurance Company

Innoveo | February 11, 2022

Innoveo, a global technology firm and a pioneer in enterprise no-code solutions today announced that Emirates Insurance has selected Innoveo Skye® to create a digital experience for its brokers that sell their personal lines of insurance, starting initially with motor insurance before expanding into other lines. After its founding in 1982, Emirates Insurance has grown their commercial and individual insurance business, making them now the 5th largest insurance company in the UAE based on Gross Written Premiums. To keep pace with the ever-changing demands of its consumers in the fast-growing UAE economy, they turned to no-code to rapidly expand their digital presence, automate manual processes, and improve efficiencies throughout the policy lifecycle. "We selected Innoveo Skye® to deploy this new customer experience across all our distribution channels. It allows our whole network to better serve customers, providing a quicker, more intuitive sales and endorsement experience, Our investment in no code digital technologies emphasizes our commitment to providing a modern digital experience, and we'll continue to innovate across all lines of insurance as our business transforms." -Jason Light, Chief Executive Officer at Emirates Insurance "We're excited that Emirates Insurance has selected Innoveo Skye® for their digital transformation journey, Innoveo Skye® is now used by five leading Middle East enterprises across insurance and banking which is a testimony to our understanding of the nuances of that market and its customer demands. Innoveo continues to grow exponentially as enterprises around the globe turn to no-code to solve some of their biggest business and technology opportunities." -Vinod Kachroo, CEO at Innoveo About Emirates Insurance One of the pioneering insurance companies in the region, Emirates Insurance Company was established by virtue of law No 6 of 1982 issued by Sheikh Zayed Bin Sultan Al Nahayan. The company opened its doors with only a handful of staff from its only branch in Abu Dhabi. After 40 years of dedication, outstanding service, and commitment to all our stakeholders, Emirates Insurance Company, a semi government company, now operates from more than 25 offices across the country and employs more than 275 staff. Listed on the Abu Dhabi Securities Market and now rated among the best insurance companies, not only in the United Arab Emirates, but the whole GCC region, Emirates Insurance Company has come a long way since its inception in 1982. EIC is now the 5th largest insurance company in the UAE based on Gross Written Premium and carries the well-respected "A-" Rating from international credit rating agency, Standard and Poors. About Innoveo Innoveo is a cloud-based SaaS company and a pioneer in no-code technology. With our functionally rich no-code platform, Innoveo Skye® and our robust set of solution accelerators, we enable anybody across the enterprise to build their own applications in weeks - not months. Our mission is to empower enterprises in complex and regulated industries to re-imagine application development. Innoveo has a proven track record of enabling enterprises to unlock innovation, simplify technology landscapes, harness digital ecosystems, accelerate speed to market and deliver winning digital experiences at a fraction of a cost and without writing a single line of code. Innoveo has delivered over 500 applications and processed 1+ billion dollars' worth of transactions globally.

Read More

CORE INSURANCE

High Street Insurance Partners Successfully Acquires GTA Insurance Group

High Street Insurance Partners | December 14, 2021

High Street Insurance Partners ("HSIP") announced today that it has acquired Nebraska-based GTA Insurance Group. GTA Insurance Group provides comprehensive insurance and risk management solutions across Nebraska. It has an extensive agricultural practice and offers business and personal insurance, as well as benefits. "We are thrilled to have GTA Insurance Group join HSIP, This represents over 30 new offices across Nebraska, which greatly expands our footprint in communities across the Midwest. More importantly, this partnership allows us to provide deep agricultural expertise to our clients." -Scott Wick, CEO of HSIP. We are excited to join HSIP. Together we will be able to better serve our clients, our employees, and our communities. We'll also be able to add new clients who will benefit greatly from this partnership and its shared, community focused philosophy. - Krae Dutoit, President, GTA Insurance Group HSIP is one of the fastest growing insurance brokerages in North America. The firm has now completed 83 acquisitions since forming the company in mid-2018. About High Street Insurance Partners High Street Insurance Partners (HSIP) is a full-service, independent insurance brokerage firm. Founded in 2018, the Traverse City, Michigan-based company provides a broad array of business insurance & risk management; employee benefits & human capital management; financial & retirement services; and personal insurance solutions delivered through community-focused agencies. HSIP employs over 1,700 insurance specialists & consultants in offices based in Arkansas, Colorado, Connecticut, Florida, Georgia, Illinois, Iowa, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, & Washington.

Read More

INSURANCE TECHNOLOGY

Xceedance Expands its Actuarial and Analytics Services for Insurance Organizations

Xceedance | December 01, 2020

Xceedance, a global supplier of strategic insurance consulting and technology servicing insurance associations around the world, today reported the extension of its global Actuarial and Analytics Services practice, driven by Matthew Duke, SVP and chief statistician. “Matthew looks at actuarial services from a business perspective first,” said Manish Khetan, COO of North America operations at Xceedance. “His approach to maximizing the value of the insurance actuarial function can be transformational for large companies looking to streamline and focus operations. Small to mid-size insurance companies, which may not have the bandwidth to truly take advantage of progressive actuarial services, can also benefit from the Xceedance offering.” Duke acquires 15 years of authority actuarial and analytics disciplines, with ability in technique execution, encouraging authoritative change, and settling business challenges by means of information driven experiences that straightforwardly sway productivity. He is an individual from the American Academy of Actuaries (MAAA), a partner of the Casualty Actuarial Society (ACAS), perceived as a partner in reinsurance (ARe) by The Institutes, and accomplished his MBA from The Wharton School, University of Pennsylvania. Preceding joining Xceedance, Duke worked at Blackboard Insurance as head of evaluating and development analytics, where he created actuarial estimating foundation, driven state recording activities, reclassified the function of a statistician, and selected top ability. Notwithstanding break head of danger at Blackboard, Duke held situations at Freedom Mortgage, Guy Carpenter, Arch Insurance Group, and Travelers. “Xceedance has provided actuarial services to insurance companies for several years, building a foundation upon which an expanded practice with broader reach can be established,” said Duke. “I strongly believe the involvement of proficient actuaries at all levels of the insurance decision-making process can translate to real value on the profit and loss statement. In partnering with Xceedance, insurance organizations can have access to top-quality actuarial and analytics resources, not only for standard pricing and reserving work, but also to enable other functions which contribute to the goals and outcomes of a company’s strategic plan.” About Xceedance Xceedance (www.xceedance.com) is a global provider of strategic consulting and managed services, technology, data sciences, and blockchain solutions to insurance organizations. Domiciled in Bermuda, with offices in the United States, United Kingdom, Liechtenstein, Switzerland, Poland, India, and Australia, Xceedance helps insurers launch new products, drive operations, implement intelligent technology, deploy advanced analytic capabilities, and achieve business process optimization.

Read More