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The Impact of Coronavirus on Insurance Premiums (and what you can do about it)

The insurance industry is currently facing significant global losses, which are expected to lead to what is known as a ‘hardening market’. In simple terms, this means the price of insurance premiums is likely to increase over the coming years.


For a number of reasons.

Single Largest Claim Event

The expected claims payments from COVID-19 are set to be the largest in history and more than double the largest natural catastrophe on record.

Lloyds of London is the single biggest insurance market in the world and provides cover for risks across the globe. Like many other insurers and reinsurers, it is facing significant claims payouts as a specific result of the coronavirus pandemic.

To take one industry as an example, consider the number of events in the British sporting calendar that have had to be cancelled or postponed. The cancellation of Wimbledon alone is expected to result in an estimated insurance payout of £100 million. Multiply this by the number of other global events that are likely to be insured for postponement or abandonment and the total value of insurance claims brought about by coronavirus is likely to be astronomical.

Court Cases: Another reason for the expected turbulence is that legal action is being taken against insurers that fail to pay claims where there is a suggestion of cover.

In France, AXA insurance has already been made to pay French restaurateurs’ business interruption claims having lost a court case.

In July 2020, an FCA test court case was held in the UK involving representatives of eight insurers chosen from sixteen with the potentially flawed policy wording. The outcome of the ruling will be made in September 2020 but even if the courts side with insurers, the cost of legal defence and likely further pursuit will be significant.

Stock Exchange Contraction: Investment income is a big contributor to an insurer’s financial stability. In a contracting economy, this lost income for insurers and reinsurers further erodes their reserves.

Shrinking Capacity: Many insurers are exiting certain classes of insurance or limiting their underwriting capacity, which in turn puts a “premium” on the available capacity in the market as demand outstrips supply.

Insurers need access to sufficient funds to cover the cost of any potential client claims. For instance, if Wimbledon is insured for £100m, Lloyds of London would need to have that amount in reserve. This would be the case with all policies issued.

Given the factors detailed above, insurers may stop issuing policies because they can’t cover the potential cost of additional claims. In fact, they may have to increase the price of premiums – or remove discounts and incentives – in order to issue more policies.

This is likely to happen across the board. All insurers are likely to face similar challenges, so the price of insurance increases throughout the insurance market.

The impact of these issues is likely to lead to increasing premiums over the next few years, as insurers attempt to recoup their losses. Moreover, as insurers negotiate their own insurance (known as reinsurance), they are likely to face increased costs, which will be passed on to the end customer.

Read more: What is an insurance broker?

What can you do about it?

Use the services of an experienced and independent insurance broker, such as One Broker.

We represent a broad range of clients across a diverse spectrum of sectors, within which we have built key relationships with insurance underwriters.

We understand that the cost of insurance can be critical to profit margins. They why we constantly seek products and services from the insurance industry, without being tied to any particular insurers. 

Our independence allows us to keep ahead of industry changes, engage with our clients early and build strategies to protect the competitiveness and extent of coverage of their insurance portfolio.

If you would like to discuss your insurance, contact Ian on 01603 218228 or Mark Ling on 01223 949002.

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