The world’s largest insurers have learned lessons from previous health crises, including the 2003 SARS outbreak. Over the years, they’ve tightened up their policies, inserting communicable-disease exclusions to prevent potential losses. That means consumers and companies will bear the brunt of the cost for disruptions related to the virus -- which has infected 90,000 people and left more than 3,000 people dead.
“While there is a significant risk of disruption, coronavirus-related claims will be low,” analysts at Moody’s Investors Service wrote in a note on Monday. “Business interruption claims will be limited as these policies commonly exclude outbreaks of infectious disease, and pay out only if physical damage occurs.”
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Below are some of the areas where insurers stand to be affected by the virus.
Health Insurance
While most of the industry nervously leafs through policies and counts its exposure, firms offering health insurance policies may get more business.
Companies such as Prudential Plc stand to benefit from the virus’s spread as more people seek cover. That was certainly the case back in 2003, when Asia represented a far smaller part of its business.
“Prudential generates almost half its operating profit in Asia and health and protection products are a significant part of its offering,” Kevin Ryan, an analyst at Bloomberg Intelligence, wrote in a note. In the first nine months of 2003, when SARS struck, “Prudential reported a 17% rise in new business sales in local currency.”
Health insurers in China are also expected to get a helping hand from the government.
“We expect coronavirus-related critical illness claims to be limited because the Chinese government has undertaken to cover the cost of care and treatment for those affected,” Moody’s said in a note on Monday.
Events Insurance
Events are particularly susceptible to an epidemic, and a number of large corporate fairs and conferences have been scrapped or postponed.
“Event cancellation is one area of insurance that may have losses,” analysts at Fitch Ratings said in a note on Monday. “The largest event taking place is the Tokyo Olympics in July 2020. Industry experts anticipate coverage of approximately $2 billion for this event.”
Informa Plc, which derived more than half of its 2018 revenues from events, has postponed several March and April exhibitions as a result of the virus. The London-based firm has fallen almost 23% so far in 2020, greater than the drop in the benchmark FTSE 100 index.
Mipim, the world’s largest property fair, was postponed to later in the year, while the Mobile World Conference in Barcelona was canceled.
“With other companies, like logistics companies if shipments don’t come through in the next few weeks, there will probably be some catch-up effect later down the line,” said Michael Field, an analyst at Morningstar Inc. “With conferences and sporting events, generally, you’ve got tight windows and, if you miss them, that could be the end of it for a year or two.”
Travel Insurance
The cost to insurers from payouts on travel insurance is likely to be minimal. Many travel policies exclude losses caused by epidemics, so unless consumers took out additional disruption cover they won’t be able to claim for canceling travel plans, according to a statement on Allianz SE’s travel insurance website.
Some insurers, including Allianz and AXA SA, have temporarily waived that condition for certain claims related to coronavirus.
Credit Insurance
A slowing economy and lagging consumer spending could lead to higher claims for credit insurance, and the longer the outbreak continues, the bigger the impact could be for firms like Coface SA and Allianz’s Euler Hermes.
Allianz, Europe’s largest insurer, says the biggest potential risk would be from any bankruptcies in Europe spurred by the virus’s spread. Credit insurance protects companies when firm they do business with fail.
“The issue that may affect us is if you have massive bankruptcies in small- and medium-size companies, because we have the world market leader in credit insurance,” Chief Executive Officer Oliver Baete said in an interview with Bloomberg last week, referring to Euler Hermes, which it acquired in 2018.
While Allianz’s credit insurance business isn’t large in Asia, the firm has still been cutting such exposure in China for the past two months, he said.
Reinsurance
Reinsurers, firms that provide insurance for insurers, would need the death toll to rise into the hundreds of thousands before they took a big hit, but the effect of a full-scale pandemic would be sizable.
“It’s one of the biggest potential risks they face on a par with a 1-in-200-year hurricane or quake,” said Charles Graham, an analyst at Bloomberg Intelligence.
For instance, about 15% of SCOR SE’s regulatory capital is at risk in the event of a pandemic, but only in an extreme event that would see more than 10 million people die from the virus, according to company filings.
Munich Re has exposure of more than 500 million euros ($556 million) to contingency losses, should all events covered for pandemic be canceled, said Torsten Jeworrek, chief of the firm’s reinsurance unit.
For now, Munich Re’s “risk overall is pretty limited” because few clients include pandemic risks in their reinsurance coverage, Chief Financial Officer Christoph Jurecka said in an interview on Bloomberg Television on Friday. The risks are “easily digestible for us as we speak; if things go south substantially then the situation might change,” he said.
Financial Markets
Last month, the S&P 500 Index dropped and U.S. Treasury yields fell amid fears about the coronavirus’s impact. The upheaval in financial markets is likely to have a more material impact on the industry, according to Moody’s analysts.
Insurers such as MetLife Inc. and American International Group Inc. control billions of dollars in investments, pooling the money it takes in from policyholders. These funds come under pressure during bouts of market volatility.
“Significant deterioration in equity markets and widening credit spreads, along with even lower interest rates, will weigh on insurers’ profitability and capitalization,” analysts at Moody’s said in a report. “The expected economic slowdown will also have a negative impact on insurers’ business volumes.”