Lloyd’s, one of the world’s leading reinsurance markets, has announced it will pay out up to US$4.3 billion (around AU$6.68 billion) to its global customers as a result of the coronavirus (COVID-19) outbreak.
In what are set to be historic losses for the global insurance industry following the far-reaching impacts of the pandemic, the market has likened the payout to catastrophes including 9/11, hurricanes Harvey, Irma and Maria.
“The global insurance industry is paying out on a very wide range of policies to support businesses and people affected by COVID-19. The Lloyd’s market alone is currently expected to pay claims amounting to some US$4.3 billion, making it one of the market’s largest pay-outs ever,” said John Neal, CEO of Lloyd’s.
“What makes COVID-19 unique is the not just the devastating continuing human and social impact, but also the economic shock. Taking all those factors together will challenge the industry as never before, but we will keep focused on supporting our customers and continuing to pay claims over the weeks and months ahead.”
In addition to the significant pay outs, Neal says the company will turn its attention to providing additional support to business and society through this difficult time.
“In addition to our £15 million (around AU$28.4 million) package of charitable donations, we have set aside £15 million in seed capital to explore how the industry can create or house structures which support economic recovery and mitigate against future events of this magnitude,” he said. “We are also working with our Advisory Committees to develop a number of initiatives to support our customers and economic recovery in the short, medium and long-term.”
It is also bracing for further financial penalties after admitting these losses could rise if the current lockdown continues into the next quarter. It says once the scale and complexity of the social and economic impact of the coronavirus is “fully understood,” the overall cost to the global insurance non-life industry could exceed other historical events.
Lloyd’s undertook an economic study of the potential losses from the pandemic in order to understand its impacts. The study examined underwriting losses through the Profit and Loss Account, as well as the reduction in the value of investments which insurance companies hold to fund future claims payments.
The economic study also took into account the current payout estimates assuming continued social distancing and lockdown measures throughout this year, as well as the forecast drop in GDP globally.
According to Lloyd’s, the estimated 2020 underwriting losses covered by the industry from the pandemic are approximately US$107 billion. In addition, Lloyd’s says the industry will also experience falls in investment portfolios estimated at US$96 billion, bringing the total projected loss to the insurance industry to a staggering US$203 billion.
Lloyd’s plans to announce a series of further initiatives in the coming weeks as it continues to work with government, industry and business to support the short, medium and long-term response to COVID-19.