How COVID-19 May Impact the Insurance Industry

Overall insurance companies with diversified business, sound investment patterns and good reinsurance coverage will survive and grow after some short-term pain.

(Image credit: Manfred Antranias Zimmer.)

Impact of the Corona virus is going to have far reaching impact in coming years in terms of health, safety and overall economic development. This is going to bring global recession and economy. The question is: how much? At the board level, the following are the major considerations for insurers:

World Economy: The general consensus is that there will be a minimum of a 1 percent decrease in Global GDP growth. This could result in substantial job loss and a decrease the ability of individuals to invest. The financial sector will see reduced valuation and major NPAs. Payment defaults and write-off of assets may happen by major companies and it could extend to over-leveraged economies like Italy, Greece and Spain, which were trying to recover from debt crises. This will cause major re-rating of commercial paper.

Tourism: Travel and tourism will remain subdued for initial few quarters, and this sector is going to be in maximum pain. Airline, hotel, restaurants, entertainment and related sectors dependent on tourism will take time to recover. As a result, the livelihood of workers associated with these sectors will be crippled.

Oil Price crash: Major oil importers like India and China are going to get some relief but economies dependent on oil export are going to see reduced expenditure and many Shale gas companies may be headed towards bankruptcy.

The insurance sector is highly dependent on a better job market and good financial growth; however, the impact may vary based on the line of business.


Health and hospitalization Insurance: This sector is the epicenter of insurance for COVID 19. Hospitalization claims may rise worldwide. Expect major litigation about definitions of coverage and terms of settlement. However, history shows that SARS and Swine Flu epidemic have only increased the purchase of insurance in the long run. In short term this sector may suffer, however carriers who sustain these hard times may be well placed for higher growth in future.

 Life and Annuities

Life: Though the number of deaths increases every day, it may not ultimately have a major impact in the books of business. However, Life insurance companies may face a major asset/liability mismatch. Most fixed return assets are going to give reduced returns due to rate cuts by all major central banks. Purchase of new life insurance may increase.

Annuities: Most of the impacted policyholders are elderly. This could give some gain to Insurance companies and offset the cost of death. With such low interest rate, number of people opting for voluntary annuity may come down. 


Travel Insurance: Global travel insurance (mainly comprising  Medical Expenses, Trip Cancellation, Trip Delay, loss of work) may see a major rise in claims, coupled with a huge dip in new insurance premium. This sector may be subdued for quite some time owing to reduced travelers across the world. However, percentage of travelers opting for travel insurance will increase in the future.

Aviation: Aviation insurance (Ground risk hull insurance in motion and Inflight insurance) are going to be in reduced risk as aircrafts are flying less and it is going to see equally less premium for insurance industry. This sector could see major bankruptcy, reducing the capability of airlines to buy new aircraft. Growth in aviation insurance may see a major dip.

Marine Insurance: World trade is going to take a major hit, unless leaders of the world make coordinated efforts to reduce trade barriers. Based on current projection insurance companies are going to see a dip in overall insurance premium.

Workers Compensation: Insurance companies may see higher claims coming from employees who perform public-facing jobs, such as health workers. Carriers may also see new sets of claims from back-office workers who may have contacted the disease from co-workers. On the other side of the coin, factories and offices are working with reduced capacity—in turn reducing the incidence of work-related injury claims. If economic activity is reduced, it may also lead to reduced insurance premiums due to unemployment.

Motor insurance: As companies shift towards work-from-home and countries declare major lockdown, the monthly miles per vehicle is going to reduce, resulting fewer accident claims. However, decades of data suggest that as oil prices decrease; driving miles and claims increase proportionately. With global supply chain disruption and economic slowdown, new car sales may see a major dip.

Cyber risk: Companies across the world are experimenting work-from-home as an alternative to physical presence in the office. This may cause extra risk to insurance companies for cyber security and data privacy, but this will increase the adoption of cyber risk insurance, which will continue to be one of the fastest growing insurance segments.

Business Disruption: This sector may see a high incidence of claims, however post-epidemics like Ebola, H1N1 many insurance companies started putting it in exclusions. This is one of the segments that may see a large number of organizations opting to get themselves covered.

Overall insurance companies with diversified business, sound investment patterns and good reinsurance coverage will survive and grow after some short-term pain. In long run, insurance industry has become stronger with each crisis—and that’s what insurance is all about.

Cloud-Based Solutions Help Mitigate COVID-19’s Effects on Insurers

Siddhartha Nigam // Siddhartha Nigam is Practice and Delivery Head at Larsen & Toubro Infotech (LTI). In that role he manages the P&L of the firm's insurance practice and its core system transformation work. Nigam is an expert in the U.S. property/casualty core systems and billing solutions, as well as U.K. life and pensions policy administration systems and business transformation. 

Comments (2)

  1. A perfect vision of corona virus impact on the insurance industry. thankyou for your analysis backed by facts …every sector has been covered in detail.

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