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Law360, London (May 1, 2020, 2:59 PM BST) -- Insurers based in the U.K. could face global claims of up to $19.1 billion from the coronavirus pandemic on cover for canceled events, business interruption and trade credit, broker Willis Towers Watson said in a report published Friday.
The number is based on the grimmest estimate, with losses of $2.2 billion in the most optimistic scenario. The number is still far higher than previous estimates by the Association of British Insurers of losses of £1.2 billion ($1.5 billion), which largely reflects potential damage in the U.K. only.
Industry bills could range from $11 billion for the U.S. and the U.K.in the most optimistic scenario to $80 billion if the crisis stretches for a year, and could mirror the 1918 Spanish flu pandemic in scale.
Alice Underwood, global leader for insurance consulting and technology at Willis Towers, said industry losses from COVID-19 would probably exceed the hit the sector took from the 2001 New York terror attack, which cost insurers $40 billion.
"Given the potential scale and systemic nature of pandemic loss, discussions about the need for some sort of government backstop to address future pandemic risk have already begun," Underwood added.
The U.K. numbers are based on a projected impact on the market of between $1.1 billion and $13.9 billion for insurance for business interruption and event cancellation. The numbers would reach the higher end of that scale if a U.K. lockdown lasted 12 months and policy wording was "soft" enough to justify paying claims.
Separately, London market insurers would probably face a bill for between $1.1 and $5.2 billion in political risk, trade credit and surety business lines, which largely guard against contract failure due to business insolvencies.
The most optimistic scenario has governments bringing the pandemic under control within three months, although the number of insolvencies is double that of the 2008 financial crisis. In the most severe scenario, it takes a year for the pandemic to come under control and insolvencies are 4.5 times that of the last crisis.
Those losses however are likely to be offset by gains in the motor market, as the volume of claims falls because more people are staying at home during the lockdown.
U.K. insurers are likely to experience a cut in losses from personal and commercial motor cover, ranging from $1 billion to $7 billion, the report found. A question, however, would be whether regulators urged insurers to issue premium refunds to motorists, and what the scale of those would be.
Similarly, there will probably be lower losses in aviation and marine insurance of between $0.6 billion to $1.1 billion as airlines strip back flights because of the crisis.
--Editing by Ed Harris.
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