Staying Home Is No Burden for Insurers

Many people might be e going out of their minds staying at home during the pandemic. But that’s
proving to be a benefit for insurers.

A number of insurers have noted that the frequency of many types of claims, like auto accidents or workplace injuries, are sharply declining amid lockdowns across the country. This is emerging as a substantial offset to the insurance losses caused by the pandemic. 

At Travelers Ins. for instance, Covid-19 was directly responsible for $114 million of losses in the second
quarter, in lines including workers’ compensation. Think of things like a health-care
worker making a claim because he or she got sick on the job without the necessary protective
equipment. However, because many people weren’t at work, and not driving as much or
going to stores, the frequency of many other claims, like “slip-and-fall” incidents, has
dropped sharply. So the net charge from Covid-19 to Travelers was only around $50
million pretax in the first half of the year, the company said.

Reflecting this change in behavior, Traveler’s saw a nearly 10-percentage-point
improvement in the underlying combined ratio—a core measure of underwriting profit—
in personal auto insurance. It is not clear at this time how lasting this benefit will be, but a recent study by KPMG estimated that Americans may indefinitely drive around 9% less—as much as
270 billion fewer miles a year—as work and shopping habits evolve.

However, business insurers are still reporting net losses amid Covid-19, and
that’s before more people are risking on-the-job exposure by going back into offices.
Catastrophes such as a more-active storm season and now civil disorder are also proving
costly. Pretax catastrophe losses in the quarter at Travelers more than doubled from a
year prior. There are also still continuing pressures such as social inflation, a purported
phenomenon of rising jury awards and potential corporate loss exposures.


That brings the conversation full-circle to insurance rates. Travelers suggested that the insurance 
landscape now may resemble the eras following Sept. 11 and Hurricane Katrina, where
risk was repriced considerably higher. Already at Travelers, a renewal-rate gain of 7.4%
for business insurance in the second quarter was the highest since 2013. As a result, that
unit’s combined ratio improved by 0.4 percentage point from a year ago, to 97.0%. In an
extended “hard” market, investors might expect to see much more.
But at least things are moving in the right direction. And it gives investors some hope that
the scale of Covid-19 offsets at other big insurers, who have mentioned but not yet
detailed them, could be significant.

From:  The Wall Street Journal, byTelis Demos July 24, 2020