Lloyd’s has revealed that it will pay out in the range of $3bn (£2.4bn) to $4.3bn (£3.5bn) to its global customers as a result of the “far-reaching” impacts of Covid-19.
The firm said this is on a par with 9/11 in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2017, all of which led to similar payouts by Lloyd’s. It added that these losses could rise further if the current lockdown continues into another quarter.
Lloyd’s believes that once the scale and complexity of the social and economic impact of Covid-19 is fully understood, the overall cost to the global insurance non-life industry is likely to be far in excess of those historical events.
To understand the impact of the pandemic on the global non-life insurance industry, Lloyd’s undertook an economic study of the potential losses.
This looked at both underwriting losses through the Profit and Loss Account, as well as the reduction in the value of investments which insurance companies hold to fund future claims payments.
The economic study took account of the current payout estimates assuming continued social distancing and lockdown measures through 2020, as well as the forecast drop in GDP globally.
It found the estimated 2020 underwriting losses covered by the industry as a result of COVID-19 are approximately $107bn (£87bn), on par with some of the biggest major claims years for the industry, such as when three catastrophic windstorms have struck.
Importantly, these natural catastrophes were geographically contained events, occurring over the course of hours and days – vastly different in nature to the global, systemic and longer-term impact of COVID-19.
In addition, unlike other events, the industry will also experience falls in investment portfolios of an estimated $96bn (£78bn), bringing the total projected loss to the insurance industry to $203bn (£166bn).
John Neal, CEO of Lloyd’s, said: “The global insurance industry is paying out on a very wide range of policies to support businesses and people affected by COVID-19. The Lloyd’s market alone is currently expected to pay claims amounting to some $4.3bn (£3.5bn), making it one of the market’s largest pay-outs ever.
“What makes COVID-19 unique is the not just the devastating continuing human and social impact, but also the economic shock. Taking all those factors together will challenge the industry as never before, but we will keep focused on supporting our customers and continuing to pay claims over the weeks and months ahead.”
He added: “Alongside making record pay outs, we have been turning our attention to what more we can do to support business and society through this incredibly difficult time. In addition to our £15m package of charitable donations, we have set aside £15m in seed capital to explore how the industry can create or house structures which support economic recovery and mitigate against future events of this magnitude.
“We are also working with our Advisory Committees to develop a number of initiatives to support our customers and economic recovery in the short, medium and long-term.”