Measures to help customers struggling to pay premiums on insurance policies during the coronavirus crisis will come into effect on Monday, Britain’s Financial Conduct Authority said.
The FCA, which put the measures to public consultation on May 1, said on Thursday that a majority of those who responded showed support.
The measures, which include deferring premiums for up to three months, would be reviewed in the next three months and may be revised if appropriate, the FCA said.
"Many firms in the insurance industry have already taken some of the actions we are suggesting here to support customers, such as premium reductions, discounts, waiving fees, and payment deferrals," said Sheldon Mills, interim executive director of strategy and competition at the FCA.
"The measures confirmed today will provide urgent support to those that need it," Mills said.
To cost
The coronavirus pandemic will cost the insurance industry more than $200bn according to new forecasts from Lloyd’s of London.
Just over half of the $203bn estimated loss relates to claims, with insurers expecting to pay out for events cancellation, business interruption and trade credit cover. Another $96bn comes from investment losses, where turmoil in financial markets has hit the assets insurers hold to fund claims.
"This is a loss of a magnitude that none of us have seen in our lifetime," said John Neal, Lloyd’s chief executive.
The estimate is the first to take account of the overall economic impact of Covid-19 on general insurance — also known as property and casualty insurance.
The figure for claims alone would make 2020 one of the most expensive years ever for the industry, on a par with 2005 and 2017 when insurers faced huge payouts following storms in the US and Caribbean. The 9/11 terror attacks also generated a huge volume of claims.
The difference this time is the global extent of the crisis. "I don’t think anybody envisaged a scenario where each customer was sustaining the same loss at the same time everywhere in the world," said Mr Neal.
The Lloyd’s market itself is expecting to pay out claims of between $3bn and $4.3bn based on estimates from the insurers that operate there, although that number could rise if lockdowns continue beyond the end of June.
Mr. Neal said the industry had enough in reserve to pay its claims. Nevertheless, about half the insurers at Lloyd’s — known as syndicates — will have to raise fresh capital.
Many big insurers have outlined the scale of claims they face in their first-quarter results over the past few weeks. So far, the total amount set aside to pay claims related to the crisis has passed $3.3bn just for the three months to March.
Mr Neal said that beyond the immediate payouts and investment losses there would also be an effect on premiums. “A loss of the magnitude of $200bn will have an inevitable impact on price,” he said. “You have to assume over time that prices will rise.”
However, he added: "As we go into recession, there is a clear impact. Recession means less activity, which means less . . . volume."
In the short term, Lloyd’s has set aside £15m to explore how cover can be provided for big crises in the future. It is also insuring more than 20 clinical trials of treatments for Covid-19.
(Published by Reuters y Financial Times, May 14, 2020)
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