After COVID-19, P&C Insurance Will Not Be Quite the Same

On the surface, the assumption was a no-brainer. Since the property-casualty insurance industry does not offer coverage for infectious diseases, with some exceptions or purchased inclusions, COVID-19’s financial impact would be minor (AR, March-April 2020).

It would have been a reasonable presumption if the outbreak had not led to a full-fledged pandemic. COVID-19, however, is a virus on steroids. It has a similar blueprint to other zoonotic viruses, such as severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS), with the pandemic power of the Spanish flu that ravaged the world’s population in successive waves from 1918 to 1921.

Quelling the virus has been economically devastating worldwide. The International Monetary Fund sees the global economy suffering its worst downturn since the Great Depression. Nearly 15% of the U.S. working population is now unemployed. Experts predict that figure could rise to an eye-popping 30%, eclipsing the estimated 25% unemployment rate during the Great Depression.

Other than the highly probable and far-reaching economic impact on P&C industry financial statements, the pandemic also affects the industry’s product lines in other ways. The coronavirus is changing how people live and work, while revealing systemic frailties in things like government preparedness, health care delivery, major global manufacturing and supply chains. By rapidly forcing a large-scale experiment on previously limited practices, such as mobile work, telemedicine and virtual meetings, and massively ramping up e-commerce, COVID-19 is introducing both risk and opportunity.

By rapidly forcing a large-scale experiment in previously limited practices, such as mobile work, telemedicine and virtual meetings, and massively ramping up e-commerce, COVID-19 is introducing both risk and opportunity.


As the nation responds, there is so little known about the pathogen. Models and data that are guiding government responses differ and continually change. In Wuhan, China, where the disease first took root, cases are on the rise after a period of reported reprieve. South Korea, which provides a great example of quelling the pathogen’s spread, is also experiencing more cases, as are other Asian countries. Meanwhile, predictive models that forecasted a variety of quantitative outcomes are showing significant variability and are demonstrating the adage by statistician George Box that “all models are wrong, but some are useful.”

How much the P&C insurance industry is impacted by COVID-19 will depend largely on how long the pandemic lasts. Diagnostic testing kits have been scarce in the United States. Although test availability has been building rapidly for certain circumstances, for most of the population it is currently not clear who is negative, who is positive but asymptomatic, or who is positive and had symptoms but didn’t require treatment. As the race for an effective vaccine ramps up, the development period will be followed by a series of necessary clinical trials, and it is quite possible that the coronavirus may be around for a while, like the Spanish flu.

The Financials

“Systems across our economy will be stressed by the pandemic and subsequent economic fallout — in ways that were often not anticipated by risk management frameworks,” predicts Rade Musulin, principal of Finity Consulting, an independent actuarial and analytics consulting firm in Sydney, Australia. “[This] will likely expose unexpected sources of risk.”

Fitch Ratings, which downgraded credit ratings to negative for all insurance and reinsurance company sectors and all regions globally, changed its assumptions due to COVID-19’s economic impact. The company predicts the pandemic will have a negative impact on the P&C industry-level accident year loss ratios; Fitch is adjusting the aggregate value by 3.5 percentage points, which is offset by 1.5 percentage points due to the favorability of personal auto insurance, according to an April 7, 2020, news release.

The commercial P&C market was already hardening in most lines before COVID-19 … Liability insurance coverages … were especially hard hit, with claim payments accelerating partly due to increases in litigation defense and settlement costs — also called social inflation.


Additionally, Fitch makes several assumptions concerning COVID-19’s impact, such as a decline in key stock market indices by 35% relative to January 1, 2020, valuations, an infection rate of 5% and a mortality rate of 1%.

Personal P&C lines are experiencing generally modest rate increases compared to the commercial side. For the first quarter of 2020, personal lines prices — composed of personal automobile and homeowners insurance — were up 3.5%, a reduction from a 4.5% increase in the fourth quarter of 2019, MarketScout reported on April 6, 2020.

The commercial P&C market was already hardening in most lines before COVID-19 made its appearance. Liability insurance coverages were especially hard hit, with claim payments accelerating partly due to increases in litigation defense and settlement costs —also called social inflation. When comparing first quarter 2020 with fourth quarter 2019 rates, increases were 7.5% in directors & officers (D&O) coverage, 6.25% in professional liability, 4.25% in general liability and 4.5% in employment practices liability, according to another MarketScout release dated April 6, 2020.

Commercial auto continued its decade-long premium ascent, rising 7%, as commercial property rose by 4.5%, and umbrella/excess rose by 4.25%. The only line with a declining premium was workers’ compensation at -1.25%. Commercial auto rates have been rising for several reasons, including distracted driving and vehicle repair cost increases (AR, May-June 2019). Commercial property costs have also risen for the past three years in large part from major catastrophe losses. Premiums for business interruption coverage and business owners policies increased 4% each as well.

“If history is a guide, as the economy slows, there will be an intensification of competition for market share,” explains Robert P. Hartwig, clinical associate professor at the finance department and director for the Center for Risk and Uncertainty Management at the University of South Carolina. “I don’t expect a degeneration into a soft market, but it will take the edge off of pricing.” Hartwig also says insurers will “take a revenue hit as the economy slows,” because exposures are down due to COVID-19 and also due to temporary refunds and discounts currently being offered by most personal auto insurers.

Coverage Expansion

Politicians are pressuring insurers that write certain P&C lines to cover losses outside the written bounds of the policies. Most starkly, both federal and state legislators have been attempting to pass bills that would require business interruption coverage to include losses related to COVID-19. “There is more politics than substance here,” says Hartwig, pointing out that the National Association of Insurance Commissioners and the National Council of Insurance Legislators have positions against retroactive creation of liability for insurers.

“If P&C insurers provided all the coverage and services being proposed by legislatures,” he estimates, “the entire industry would be bankrupt by the Fourth of July.”

Small business continuity losses for businesses with 100 or fewer employees would cost an estimated $255 billion to $431 billion per month when the entire P&C industry’s average monthly spend is about $6 billion, said David A. Sampson, president and CEO of the American Property Casualty Insurance Association, in an April 6, 2020 news release.

Meanwhile, plaintiffs’ attorneys are pushing insurers to cover COVID-19 losses in various products and forms. The pandemic coverage is costly, but it is available to businesses willing to buy it. The irony, Hartwig says, is that it is difficult enough to persuade people to purchase flood coverage when the risk is right before their eyes.

However, John Lucker, an insurance industry executive consultant and a retired principal of Deloitte, said the sector could do a much better job providing risk management education for customers and the general public and be clearer about what is and is not covered. “Don’t expect customers to read a thick policy document of arcane and vague terms and conditions,” he says, suggesting that insurers outline common scenarios in an FAQ type document.

Workers’ compensation is also expanding in response to the COVID-19 emergency, but there are concerns that the impact will not be short-term but precedent-setting. Traditionally, workers’ compensation covers occupation-related injuries, illnesses and fatalities. Since communicable diseases can be caught anywhere, they are generally, with narrow exceptions, not covered.

However, COVID-19 is quickly becoming an exception, said Mark Walls, vice president of communications and strategic analysis for Safety National, a specialty insurance and reinsurance provider. “We are changing the rules about what compensable claims are,” he adds.

In most states, the concept has also expanded to essential workers, however those are defined. With a couple of exceptions, states have been expanding workers’ compensation eligibility by directive without consulting industry advocates, Walls says.

The cost of covering COVID-19 through workers’ compensation losses could be severe. In New York, the costs for workers’ compensation losses could jump to $31 billion compared to annual losses of $8.7 billion for insurers and self-insured companies, according to a legislative analysis by the New York Compensation Insurance Rating Board, dated March 27, 2020.

What remains to be seen, however, is the degree to which people will choose to file workers’ compensation for COVID-19, Walls said. The federal government has passed a law expanding leave of absence that provides a full salary, which means higher payments than offered through workers’ compensation. This would incentivize workers to file claims under group health, he says. Many private insurers are offering to pay first-dollar coverage for COVID-19 treatment, including Aetna, CIGNA, the Blues and Humana.

With this said, however, Lucker also wonders whether on-the-job COVID-19 experiences could trigger additional workers’ compensation claims for mental health-related PTSD-type ailments for certain front-line health care workers such as ICU nurses or respiratory therapists.

According to the Kaiser Family Foundation, which based estimates on 2018 data reflecting 22% of 82 million patients in the IBM Health Analytics MarketScan Commercial Claims and Encounters Database, the average total cost of hospital stays for pneumonia, the primary illness that can ultimately kill COVID-19 patients, was $21,000 in 2018 for patients with major complications or comorbidities; for those without health complications, the cost was $9,763.

In personal auto, carriers are generally respecting requests from state insurance commissioners to allow customers a reprieve from premium payments if they are not currently able to pay their bills. Cancellation rules have also been relaxed for a number of months. If these contractual concessions continue in the longer term, it could impact whether premiums are ultimately paid in arrears and could introduce retention issues, says Roosevelt C. Mosley, principal with Pinnacle Actuarial Resources.

Due to the reduction in accident or claim frequency, many insurers are offering relief to insureds. State Farm is offering credits on future policy terms. Allstate announced plans to pay more than $600 million to its customers during April and May 2020 as part of its “Shelter-in-Place Payback.” American Family will be returning $50 per vehicle. “They are getting a head start on the next rate revisions,” says Mosley, adding that personal auto insurers will be either returning money or reflecting lower losses in future rates.

The decline in accident frequency in Ohio demonstrates the impact of social distancing. For example, when Governor Mike DeWine (R) declared a state of emergency on March 9, 2020, the vehicular crash rate began to subside. From March 14 to March 31, 2020, when the governor restricted bars and restaurants to take-out orders only and later implemented an executive order to stay at home, claims frequency dropped 57% compared to the same period in 2019, according to TNEDICCA, which offers comprehensive location-based traffic accident data. As reports of COVID-19 cases increased, crash rates declined even more to reach a year-over-year 76% reduction from April 1 to 5, 2020. (See Chart 1.)

Homeowners insurance losses could come out as a wash. Non-weather residential losses are mostly due to factors that could be exacerbated by lockdowns, explains John Rollins, principal and consulting actuary with Milliman. “With more people in homes more hours per day, and perhaps some who are unfamiliar with the home, it stands to reason that the effective exposure to loss per measured house-day would go up,” he says. This could lead to, for example, an increase in fire-related losses, which have the highest severity per claim. In contrast, homeowners insurers could also see fewer losses because more people are home to mitigate losses. “[I]t’s often surprising how many large homeowners claims are due to ‘inside jobs’ where a domestic worker or even a relation steals property,” Rollins observes.

Teleworking can also introduce numerous cyber vulnerabilities, Lucker explains, including cyber threats not previously known or seen in a work context, due to inadequately secured home networks or routers, Wi-Fi hitchhiking, unencrypted communications, phishing schemes, etc. “Many companies have not demonstrated that they have robust business continuity plans with regards to having large portions of their workforce working remotely,” he observes. “So inevitably there could be some significant cyberrisk exposure not contemplated by their policies.”

“If P&C insurers provided all the coverage and services being proposed by legislatures,” [Hartwig] estimates, “the entire industry would be bankrupt by the Fourth of July.”


Alex Krutov, president of Navigation Advisors, a firm specializing in quantitative analysis of cyberrisk, says cyberrisk has grown in a short period of time, and some of the increased risk will persist in the long term. “This has also led many to identify gross inadequacies in their cyber insurance coverages. It will ultimately lead to coverage changes and additional demand for certain types of cyber insurance,” he adds.

Liability coverages lawsuits are also expected to rise due to COVID-19, says Cathine Lam, a senior data scientist and associate actuary for Metabiota’s data science team. “There is a rise of COVID-19-related BI and D&O insurance coverage lawsuits from restaurants, cruise lines, hospitality and service groups,” she observes. Metabiota supports and develops products and services that help track and anticipate the social and economic repercussions of pathogenic microbial agents.

The cases, she says, “are largely related to the interpretation of whether civil authority coverage could be triggered by shelter-in-place orders, [whether] ‘contamination’ has occurred on premises or [related to] actions considered to be ‘wrongful acts,’ especially when ‘communicable disease’ is not specifically excluded.” Lam explains that this means insurers could potentially see a rise in commercial general liability claims.

General liability already has a material legal cost element, accounting for 10% of total loss and loss adjustment expenses, according to “COVID-19: The Property-Casualty Perspective,” a Casualty Actuarial Society research brief posted on March 27, 2020. The brief also looks at the impact COVID-19 has had on travelers, event cancellation and major coverages.

Another area of concern is medical malpractice coverage, which is likely to see a rise in claims of treatment errors at overwhelmed hospitals and potentially from the growing use of telemedicine. “There’s no question that increased mortality at overwhelmed hospitals will increase the potential for litigation,” Hartwig says. That said, most hospitals in the U.S. have seen reduced patient loads as elective surgeries and other procedures are postponed or canceled. “With many non-COVID patients unwilling or unable to visit their health care providers in person, an increased reliance on telemedicine — a technology still in its infancy — is a concern,” he adds.

Systemic Vulnerabilities

Besides the ravages of death, lost employment and changed lives that COVID-19 is leaving behind, the coronavirus’s emergence has also revealed systemic frailties. “One key lesson from the current crisis involves how complex and fragile our ‘just-in-time’ supply chains have become,” Musulin observes.

The COVID-19 crisis also reveals that many firms do not fully understand their supply chains, and few actively manage them, he adds. “One way this could affect personal lines insurance is a shortage of certain repair parts that could lead to either delays in claim settlement or higher costs,” he says.

“Globalization is a powerful economic force, but it fails to build resilience when just-in-time inventory appears as if by magic,” says Max Rudolph, a life and enterprise risk management actuary. Just-in-time supply systems are not sustainable when medical supplies like ventilators and personal protective equipment become scarce. In the future, he adds, medical and food supplies need to be sourced closer to the final user to build redundancy into the supply chain. In the crisis, the U.S. closed down all but essential services because there were not enough COVID-19 testing kits and reporting delays made it difficult to track and manage the disease’s spread.

Actuaries, risk managers and insurance executives answering the 13th Annual Survey of Emerging Risks believed that the undervalued risks deserving of more attention in the next 20 years include climate change, demographic shifts, and a tie between cyber/networks and pandemics/infectious diseases, according to the key findings of the survey released in March 2020. Climate change was ranked as the top emerging risk, followed by disruptive technology, risk from cyber/networks, financial volatility and asset price collapse.

Participants answered the survey in November 2019. But since risk is perception-based, says Rudolph, who compiles and analyzes the data each year, he believes the results would have been quite different had the survey been conducted in March 2020.

New Risks, Opportunities

The pandemic has changed how people live, work and visit their health care providers, which can introduce greater risks and new coverage offerings. In the longer term, says Lucker, “some of the unique issues that may emerge from the pandemic could serve as catalysts for innovation or foster the evolution of products like pandemic coverage, enhanced supply chain disruption coverage, and greater adoption of Pay-As-You-Drive policies.”

Consider telecommuting, also known as remote work. Global Workplace Analytics estimates that more than 75 million employees could be working from home by the end of the crisis.

How the insurance sector engages with decision-makers now and in the future will also dramatically impact the sector’s future.


The organization predicts that, within two years, 25-30 million U.S. employees will regularly work from home on either a full-time or part-time basis. In comparison, before COVID-19, five million employees — 3.6% of the workforce — telecommuted on a full-time or part-time basis. “Before COVID, we were predicting annual growth continuing at about 10-15% per year,” says Global Workplace Analytics President Kate Lister.

“Companies that accommodated remote work as a ‘nice to have’ for employee retention are quickly attempting to figure out how to run their entire business with a remote workforce as a ‘must have,’” observes Rob Galbraith, author of The End of Insurance As We Know It.

Of course, at-home work exposure is nothing new for workers’ compensation. But that doesn’t eliminate challenges. “It’s very difficult to monitor the environment from a loss control standpoint,” Walls says. “There is also very little case law out there defining to what degree an employer can be held responsible for a work injury sustained in the worker’s home,” he observes. Companies might also demand cyber policies that better cover at-home employees.

Personal auto insurance is currently picking up losses typically assigned to commercial auto due to the use of personal vehicles for essential deliveries. Covering these exposures “is not a significant amount of additional exposure when fewer cars on the road reduces accidents,” Mosley explains, and some insurers were offering such coverage before the COVID-19 pandemic. Grocery delivery service is nothing new, but it is possible that in the post-COVID-19 world, a greater population will adopt deliveries rather than visit a store.

It is also likely that people will prefer telemedicine when possible, offering risk and opportunities for insurers.

Lucker, an advisor to the parametric contract company Machine Cover, expects greater demand for parametric contracts,* warranties and similarly structured insurance products for risks like cyber at home, internet outages, website downtime and home and business power outages/failures. “Such parametric product categories could offer advantages over traditional insurance as they eliminate complex claim handling and simplify purchase, payments and claims,” he adds.


COVID-19 hit the world suddenly and unexpectedly. The response has revealed sobering realities about the health of Americans, the health care delivery system and the health of the economy.

The response to COVID-19, however, largely falls in the hands of public officials, policymakers, regulators and, potentially, the courts, whose decisions can affect P&C coverage. How the insurance sector engages with decision makers will also dramatically impact the sector’s future. Future-forward insurance companies will develop new products in the “new normal” of COVID-19 and its aftermath.

Annmarie Geddes Baribeau has been covering insurance and actuarial topics for nearly 30 years. Find her blog at






6 From the NAIC website: The term parametric insurance describes a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

What Experts Are Saying About COVID-19

“Many insurtechs will fail as market opportunities dry up with agents’ and carriers’ focus turned on staying afloat and keeping their operations going during this time. Insurtechs that offer compelling value propositions for a social-distanced world will thrive, and those that do make it through the down period will likely be household names in 10 years, much as startups that made it through the Great Financial Crisis of 2008 have done well over the past decade.” — Rob Galbraith, author, The End of Insurance As We Know It
“COVID-19 will be a tipping point for remote work. Traditionally approached as a tactical solution to the problem de jour — attracting and retaining talent, saving money, disaster preparedness, etc. — it will be now be a strategic imperative.” — Kate Lister, president, Global Workplace Analytics
“I believe COVID-19 will force insurers to reevaluate how commercial insurance policies are composed and communicated. Yes, property insurance policies that include business interruption coverage also require physical damage and exclude viruses. However, businesses across the country are just now learning about these requirements and exclusions. The inevitable confusion that is created by the current forms and endorsements setup in the United States is archaic and due for a modernization effort that takes advantage of digital technologies and artificial intelligence now available in the marketplace. This will also require a shift in how insurance policies are regulated.” — Chris Cheatham, CEO, RiskGenius
“The pandemic may serve as a wake-up call on climate risk. They share similarities. Both involve clear scientific warnings that have not been fully heeded, neither respects a country’s borders, both demonstrate the importance of multinational cooperation, and both require trillions of dollars in adaptation or stimulus funding. Perhaps a good use for some of the stimulus funding could be investment in infrastructure that will also reduce climate risk.” — Rade Musulin, principal, Finity Consulting, Sydney, Australia
“Insurance companies are affected by the increased cyber and other risks in ways not limited to potential increases in some types of insured losses. Their own cyberrisk has also grown; vulnerabilities of their systems and information have on average increased, leading to a greater chance of cybersecurity compromises and exploits. The growth in the cyber component of insurance company operational risk should be taken into account in the overall enterprise risk management.” — Alex Krutov, president, Navigation Advisor