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Gallagher CEO discusses impact of coronavirus on insurance industry

Some companies are taking out lower amounts insured, and have asked to postpone contract instalments. In addition, there could be a rise in property damage insurance.

— The effects of the coronavirus on the insurance industry are diverse: some companies are taking out lower amounts insured; they are renegotiating contracts; and prices are expected to rise for property damage insurance, such as fire and earthquake, says Lionel Soffia, executive president of insurance and reinsurance broker Gallagher for Chile and Latin America.

As with banks, Soffia explains that companies are asking insurers for a deferral of premiums, and some have renegotiated their monthly premium payments. Fabiana De Nicoló, general manager of insurer Southbridge, says that “there is renegotiation of prices and requests for payment in instalments, or grace instalments for two or three months, until the picture becomes clearer”. Another effect the industry has seen is what the Southbridge executive says: when it comes to obtaining insurance quotes, underwriting is more restrictive in this context of uncertainty and increased risk. “Reinsurers are including specific Covid-19 or pandemic exclusion clauses in financial lines products such as D&O (directors and officers insurance) where an increase in defence expenses would be expected. The terms for underwriting surety policies have also been tightened,” says Fabiana De Nicoló.

On the other hand, the Gallagher executive explains that “the different companies are re-calculating their revenues, adjusting them to the new scenario, which has led them to lower their insured amounts. For example, several companies involved in the import of goods have recalculated their warehouse values, which has led them to reduce these amounts. This drop in imports has led to a reduction in general, damage and transport insurance.

Soffia adds that insurance adjustments have also been observed for companies’ vehicle fleets, as cars and trucks are not circulating normally at this juncture. In that sense, “companies have started to ask for renegotiation of their programmes, seeking a rebate for these months of inactivity. On the other hand, companies dedicated to air transport, whose aircraft are not flying, have asked to change their coverage, focusing on ground coverage, which is worth 40% of the coverage in the sky,” says Soffia. However, AON clarifies that they have not seen a reduction in the amount of insurance sold to their corporate clients.

However, Soffia says that as a result of the losses suffered by international reinsurers on pandemic and property damage insurance, “the market is tightening up abroad (…). This situation will lead to a price increase that should be reflected in the coming months in the value of local insurance,” says Soffia. He adds that for this reason, “what we have seen is a significant rise in rates for property damage insurance, such as fire and earthquake”.

AON and Soffia point out that there is currently no insurance segment in the local market with a higher claims ratio as a result of the coronavirus, because while there are a large number of medical attentions linked to the pandemic, people are postponing other medical attentions.

The claims that have undoubtedly had a lower claims ratio as a result of Covid19 are vehicle insurance, due to less travel and traffic, say Soffia and AON. The latter broker says that in third party liability and property insurance, there has also been a drop in claims.

What other effects might be observed going forward? AON states that “the impact on the economy and the growth of unemployment should have an impact on life and health insurance, as part of the benefits that companies provide to their workers, where the number of insured groups will decrease and there will be an adjustment in the coverage to better control the budget”.