Risk Management

COVID-19 Costs Insurance Sector $44 Billion

Initial projections of more than $100 billion in losses now look "improbable," in part due to COVID exclusions in many P&C policies.
Matthew HellerJanuary 5, 2022

The COVID-19 pandemic has been the third most catastrophic event in history for the insurance industry though policy exclusions may have helped to keep the damage well below initial projections.

According to broker Howden, the pandemic has so far cost insurers and reinsurers around $44 billion, behind only 9/11 and Hurricane Katrina, which at about $82 billion was the most expensive insured loss ever.

But the initial projections of more than $100 billion in COVID-19 insured losses now look “improbable,” Howden said in a report on reinsurance renewals.

The report noted that of the more than $35 billion of losses in 2020, around 90% came from the property and casualty (P&C) market, most of which was to cover event cancellation and business interruption.

But amid legal battles over the validity of certain business interruption claims, insurers have moved to exclude COVID-19 from many policies. As a result, the volume of P&C claims fell dramatically in 2021 to $1.2 billion up to the end of the third quarter.

“There’s only so much event cancellation coverage out there, there’s only so much civil action coverage out there, and when you get to $40 billion, that’s pretty much exhausting what was underwritten,” said David Flandro, head of analytics at Howden.

Life insurance claims totaled $5.5 billion in the first nine months of 2021, according to Howden, with more likely to come in 2022. As many regions continued to struggle with the virus in the fourth quarter and with hospitalization rates still high in some today, life claims will undoubtedly filter through in 2022, the report said.

“Even if omicron results in further shutdowns, direct P&C underwriting impacts for previously affected areas such as property and contingency insurance will be reduced significantly by widespread communicable disease exclusions now in place,” Howden predicted.

“Perhaps the more enduring legacy of the pandemic for risk managers and underwriters will be altered risk perceptions, particularly for a systemic event,” it said.