Insurers should expect long-tail claims arising from COVID-19
Insurers must keep an eye on their D&O, professional liability and workers’ compensation claims over the next few months.
With reduced economic activity during the COVID-19 pandemic, liability claims have experienced several positive trends. However, given the lag in reporting and uncertainty, future claims cannot be ruled out, as claims patterns have changed with lockdowns and government measures to combat the virus.
Of course, not every sector has gone into hibernation. Many, such as food and online retail, for example, are largely unaffected. In addition to COVID-19-related claims, insurers continue to face claims from unrelated risks. For example, this year has already seen large claims from U.S. riots, storm damage in North America, and large fire and shipping incidents.
There is also the potential for an uptick in fraudulent claims made by third parties against policyholders claiming a loss that did not happen, which need to be watched.
Developing situations: Near- and mid-term outlook
Claims trends in the near-term are difficult to predict, given the uncertainty surrounding the pandemic and the lag in notifications. Claims frequency is likely to pick up with economic activity, while the resumption of business will bring its own risks, as plants and machinery are reactivated and with an expected rise in insolvencies and unemployment.
There is also the potential for claims arising in the mid-term from liability-related lines, such as directors and officers (D&O) and professional liability, as well as workers’ compensation, if any failures to adequately protect against the outbreak have been perceived.
Long-term changes
While the duration and extent of the pandemic are difficult to predict, claims trends in the coming years could likely reflect wider changes in society and industry brought on or accelerated by COVID-19. A growing reliance on technology and the shift to remote working, air travel reduction, investments in green energy and infrastructure, and a rethinking of global supply chains, would all shape future claims for insurers.
Claims notifications are likely to be filed, but when and how many is uncertain at this time. With SARS, insurers didn’t experience a notable spike in claims, and liability insurance lines were largely unaffected. The situation with COVID-19 is not too dissimilar, and we would anticipate a liability claims experience in line with previous outbreaks, suggesting that insurers will see few successful claims under general liability policies due to exclusions and the fact that causation is hard to prove.
Product liability and recall claims tend to follow economic activity, so there could be an impact in these areas with the economic downturn, with key sectors and supply chains, including automotive, food and beverage, and pharmaceuticals — three of the most important sectors in terms of product recalls — under pressure. Longer-term changes in consumer behavior and supply chains could also affect product recall claims. Meanwhile, restarting production after periods of hibernation may give rise to human error incidents.
Although it is still early in the process, the outbreak could result in claims against D&O, consultants and professionals, as investors and other stakeholders try to hold them accountable and recoup losses. The pandemic could trigger other litigation against companies and their officers, such as where boards have failed in their duty to prepare for disruption or disclose risks. Event litigation has become a significant driver for D&O claims, and while there have been relatively few class actions to date, this will be an area to watch.
Insolvency is another potential source for COVID-19-related D&O claims, as economists predict a wave of bankruptcies as a consequence of the pandemic. There are many ways stakeholders could go after directors following insolvency.
Professional liability claims are possible in sectors such as insurance brokering or healthcare. Previous economic downturns and catastrophic events have seen negligence claims against insurance brokers and financial advisors. The healthcare sector could also see negligence claims, for example, where a lack of personal protective equipment (PPE) or a failure to meet standards has led to COVID-19 deaths.
Cyber claims have yet to be significantly affected by COVID-19. However, with many businesses distracted by the crisis, and with a rapid increase in remote work and internet sales, companies are more vulnerable to cyberattacks, including phishing, ransomware, scams and business email compromise attacks, as well as a rise in human error incidents from staff.
Philipp Cremer is the global head of claims for Allianz Global Corporate & Specialty. Contact him at philipp.cremer1@allianz.com.
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