Insurers Benefitting from Stay-at-Home Orders

You might be going out of your mind staying at home during the pandemic. But that’s proving to be a benefit for insurers.

Source: WSJ | Published on July 27, 2020

Getting help with my tasks. Little girl working her homework with mother. Focus is on foreground.

A number of property-and-casualty insurers have noted that the frequency of many types of claims, like auto accidents or workplace injuries, is sharply declining amid lockdowns across the country. This is emerging as a substantial offset to the insurance losses caused by Covid-19.

At Travelers, Covid-19 was directly responsible for $114 million of losses in the second quarter, in lines including workers’ compensation. Think of things like a health-care worker making a claim because they got sick on the job without the necessary protective equipment. However, because many people weren’t at work, and not driving as much or going to stores, the frequency of many other claims, like “slip-and-fall” incidents, has dropped sharply. So the net charge from Covid-19 to Travelers was only around $50 million pretax in the first half of the year, the company said.

Reflecting this change in behavior, Traveler’s saw a nearly 10-percentage-point improvement in the underlying combined ratio—a core measure of underwriting profit—in personal auto insurance. It is unclear how lasting this benefit will be, but a recent study by KPMG estimated that Americans may indefinitely drive around 9% less—as much as 270 billion fewer miles a year—as work and shopping habits evolve.

On balance, though, business insurers are still reporting net losses amid Covid-19, and that’s before more people are risking on-the-job exposure by going back into offices. Catastrophes such as a more-active storm season and now civil disorder are also proving costly. Pretax catastrophe losses in the quarter at Travelers more than doubled from a year prior. There are also still continuing pressures such as social inflation, a purported phenomenon of rising jury awards and potential corporate loss exposures.

That brings the conversation back to insurance rates. Travelers suggested that the landscape now may resemble the eras following Sept. 11 and Hurricane Katrina, in which risk was repriced substantially higher. Already at Travelers, a renewal-rate gain of 7.4% for business insurance in the second quarter was the highest since 2013. As a result, that unit’s combined ratio improved by 0.4 percentage point from a year ago, to 97.0%. In an extended “hard” market, investors might expect to see much more.

But at least things are moving in the right direction. And it gives investors some hope that the scale of Covid-19 offsets at other big insurers, who have mentioned but not yet detailed them, could be substantial.