Europe’s insurers are warning against conclusions being drawn too fast about Covid-19 and are demanding a long-term perspective on the pandemic’s impact on the sector.
Insurance Europe admits Covid-19 has presented members with “unprecedented challenges” and has “already had a significant impact on the sector” but argues it will take time for many of its consequences to fully materialise.
The insurance sector is facing estimated losses of between $50 billion to $100 billion globally, it acknowledges, although the impact will not be the same in all markets, with some national economies hit harder than others, insurers covering certain losses depending on local circumstances and different measures introduced by governments.
In the UK, Covid-19 is expected to result in around £1.2 billion of claims for business interruption, travel insurance and event cancellation.
Responding to an International Association of Insurance Supervisors (IAIS) consultation on the pandemic’s impact, the trade body said a clear picture on the extent of claims will only become apparent in the medium to longer term.
It called on the IAIS to adopt a long-term perspective on issuing guidelines and measures when assessing Covid-19’s impact.
Insurance Europe says the pandemic posed “the first real test of the EU’s Solvency II framework”. But Solvency II measures that aim to protect insurers from short-term market volatility had failed and created “inexplicable exaggerated changes in the solvency position” of some insurers.
However insurance firms had generally maintained their solvency in the face of the crisis. They also continued to serve customers, while at the same time working beyond their contractual obligations to clients.
Insurance Europe says the crisis has “demonstrated the importance of clear contractual wording” to ensure consumers know precisely what their policies do and do not cover, acknowledging that the industry cannot pay for losses for which it has not received premiums.
Covid-19 also confirmed that “there is room for improvement” in the way information is provided to consumers on how insurance works, what it covers, and the terms and conditions of policies, the trade body admits.
Any changes to prudential frameworks in Europe and beyond should be comprehensively tested to ensure their effectiveness in a variety of stressed market conditions, Insurance Europe argues. Prudential frameworks should in particular look to overcome barriers to long-term business and investment, make proportionality work in practice, and reduce the burden of reporting.
Existing rules and standards should also be reviewed to see how they may inhibit the ability of insurers to invest in real assets as jurisdictions look for economic recovery and ultimately a return to growth.