CoronaVirus what impacts on insurance ? Covid-19 is present worldwide with confirmed cases of contamination in millions. The situation is rather chaotic. Certainly, it’s the worst economic recession the world has ever known.
The direct or indirect consequences of the effects of Coronavirus affect several economic sectors. The countries of the various regional economic zones register cases of contamination. However, they have practically as common point the beginning of the slope of evolution. The evolution that concerns the cycle of contagion of the Coronavirus.
At this stage of development of the pandemic, the contagion does not have the same level of advancement. In fact, every economic space existing in the world has his own level.
An expected drop in written premiums
Insurance companies in general will record a drop in their turnover in the branches directly impacted by Covid19. In fact, the drastic drop in transport activities will have a major impact on the sector’s performance. The transport activities include civil aviation, road transport and public transport. Indeed, we attested the closure of many airports and the reduction or even cessation of certain industrial activities.
Fleet subscribers would be tempted not to renew most of the fleet of vehicles whose contracts expired at the end of March 2020. Indeed, their objective is to reduce their management costs and counter their downturn in activity.
This virus wouldn’t significantly impact the fire and civil liability branches. For this, the pandemic should not last until the major renewal period of insurance contracts. This renewal is scheduled to start in the last quarter of 2020.
Taking into account the closure of airports in the main foreign destinations, travel insurance will drop quite significantly during this Covid19 period.
The turnover of the Health branch is likely to register an increase. Indeed, we must take into account the psychological impact of the underwriters of health contract in times of pandemic.
Indeed, subscribers and beneficiaries of health contracts are more vigilant about their sickness contracts. In fact, they wish to ensure that their health expenses will be correctly reimbursed by their insurers.
We observe the same phenomenon of an increase in turnover on life insurance contracts.
In return for the premiums they collect, insurance companies, as part of their activity, offer insurance coverages to cover the risks incurred by economic players.
These covers protect against health, automobile, fire, public liability, transportation, life insurance and various other risks.
The consequences of Coronavirus on people health
The pandemic of corana virus affects the health of people. Indeed, it has a direct impact on their professional lives and impacts on the economic activities of underwriters of insurance contracts.
With the exponential increase in the number of cases worldwide, the management of the number of patients will have a very significant impact on health contracts. Indeed, those ones are barely balanced in most insurance companies.
Assuming that health insurance covers corona virus sufferers, insurance companies risk experiencing historic peaks. Indeed, claims experience will increase creating imbalances in the insurers portfolios.
If we refer to the upward trend of the epidemic in the United States, France or Italy, the increase in the number of positive cases in the rest of the world could result in claims charges which could reach worrying propensities.
However, in health insurance contracts taken out with insurance companies, most insurers made provision. In most cases, this provision concerns annual review clauses to take account of the levels of claims for the current year over the one following the annual closing.
With this premium adjustment mechanism in health insurance contracts, companies may suffer data-related losses. However, the impact could be neutralized over the next year.
The residual impact for the companies would be on their treasuries. In fact, they will suffer a sharp drop with an impact on regulatory balances. It will impact particularly the coverage rate and the solvency margin.
Can operating losses or significant reductions in productivity suffered by contract beneficiaries following the cessation of their activities be covered by insurance contracts?
In order to protect themselves from the risks that could lead to the cessation of their professional activities, companies take out insurance policies for business interruption.
This type of guarantee provides compensation from the insurance company in the event of fire, explosion, water damage, machine breakdown, storms, hail and snow on roofs, etc. These types of contracts do not provide for coverage of operating losses caused by administrative restrictions following an epidemic (Covid19 in this case).
In these cases, how could the insured recover his loss related to the cessation of his activity, without resorting to his insurance contract?
A tension on the treasury to integrate
The expected drop in insurance companies’ turnover, combined with the increase in claims charges, will lead to cash outflows. The collection of written premiums may not sufficiently cover those cash outflows.
The Health and Automobile branches consume a lot of cash. However, they oblige insurance companies to have cash available immediately to meet their commitments. If the cash available is not sufficient to meet claims charges, insurance companies must anticipate the dates of their term deposits (DAT). In fact, this will allow them to sell part of their shares or to sell material assets such as land and real estate.
A certain fiscal impact
The Covid19 pandemic will have tax impacts on insurance companies around the world.
A drop in premiums written by insurance companies will have a direct impact on their tax base; less premiums written necessarily leads to less insurance taxes you will have to pay to the State.
The other fiscal impact would be a significant reduction in corporate tax. Indeed, we must take into account an expected increase in claims in the health sector with a possible drop in turnover levels in the branches concerned.
A drop in taxable corporate profits leads to a narrowing of the corporate tax base.
A necessary boost from the regulator and the States
In light of the negative impact of the Coronavirus pandemic on insurance companies, it would be difficult and complicated for them to provide an efficient service. Indeed, certain space countries adopt some containment measures and generalize the risk associated to them throughout the space. In this context, insurance companies will have difficulty to meet the regulatory obligations. Indeed, they should put in place adequate measures and take into account these contextual difficulties.
The closings of quarterly accounts at the end of March, as well as tax obligations will certainly be slowed down. Moreover, we should see a probable reduction in the number of staff working in the companies.
It would be a good signal from the various states if appropriate measures were taken to support the sector in this period of crisis. In fact, the insurance industry is already subject to profound changes in terms of recapitalization and sanitation.