The COVID-19 outbreak has caused a global major disruption, affecting people as individuals (health at risk, daily routine upset, and finances reduced) and the whole economy. It is everyone’s interest to have a strong and resilient Insurance Industry, as it plays a vital role in society: insurers help households and corporates in withstanding the adverse consequences of the crisis and act as strong investors in the financial markets.
More than to the causes obviously linked to the Corona virus (such as increase in claims from death, hospitalisation, and business interruption coverage), the Insurers’ solvency position has been so far affected by the volatility in the financial markets, the global economic downturn (equity market losses, bond impairments, ratings action and reinvestment risk) and the ultra-low interest rates, which have strongly hit those companies with a mismatched asset-liability profile. Companies offering products with return guarantees are suffering the most. Lower premiums cashed in and higher surrenders may cause liquidity pressure.
To keep on protecting policyholders, the insurance and occupational pension sectors should maintain their business continuity, even when facing the unexpected challenges risen by the pandemic. With the aim of making the insurance industry serving their clients first and putting them in the position of focusing on their duties, EIOPA has established a number of measures, among witch
- Supporting the undertakings in monitoring their solvency and financial positions by publishing the evolution of the Relevant Risk-Free interest rate term structures (RFR) and the symmetric adjustment to equity risk (EDA) on a weekly basis
- Allowing for delays in reporting and public disclosures.
In this direction, last 30 April 2020 EIOPA announced that it will postpone to end December 2020 the disclosure of its advice to the European Commission (EC) on the SII review, with the aim of taking into account the impact caused by COVID-19 on both financial markets and insurance businesses. The original deadline for the information requested has been extended by 2 months, to the 1st June 2020; the dataset will be complemented with other information (a subset of those already requested) that will be collected between July and mid-September 2020, based on evaluations with reference date 30 June 2020. The decision was made together with the EC.
- Temporarily suspending all discretionary dividend distributions, given the uncertainty of the scale and duration of the crisis.
- Stressing the need for clarity in communication, being explicit about what is / is not covered and about contingency measures in place.
- Reviewing products that may be impacted by COVID-19 to ensure they continue to meet customers’ needs.
- Treating customers fairly, although not violating the fundamentals of insurance business (some NSA are considering to force insurers to pay some business interruption claims even when excluded by the policies; EIOPA calls for careful consideration to avoid jeopardised treatments and a possible downfall of the solvency positions of some insurers, that could adversely affect the market stability).
Strictly related to the last point, are the key observations highlighted by the OECD (Organization for Economic Co-operation and Development) in their paper “Initial assessment of insurance coverage and gaps for tackling COVID-19 impacts”, published in April 2020 (www.oecd.org/finance/insurance). The OECD stresses the need of a Government involvement to address the protection gap arisen from the all the losses incurred by businesses and their employees that are likely to remain uninsured, as well as the need to improve the coverages related to epidemics and pandemics, with the aim of ensuring the customers to get what they need. According to the OECD, Governments should consider public private partnerships to support the insurability of pandemic risk, particularly if the level of risk is likely to increase in the future. Examples of international experiences could be found in insurance schemes and pooling arrangements for other catastrophic risks.
Two examples of Governments taking a strong position on COVID-19 and Insurances can be found in France and USA
- In France, the Government has encouraged the insurance industry to contribute to the generally uninsured business interruption losses related to COVID-19. The Fédération française de l’assurance announced that the industry would contribute 200 mln euros to a solidarity fund established by the government (https://www.insurancejournal.com/news/international/2020/03/23/562020.htm).
- In the USA, the Congress passed the “Families First Coronavirus Response Act”. This Act requires insurers to waive all cost-sharing for medical services provided to people with any type of private health coverage related with COVID-19 testing and associated visits. Any preventive services must be covered as well, since the ability to diagnose coronavirus in time is very important in the struggle to slow down the spread of the pandemic. The new Act also enables states to provide free coverage for coronavirus testing for uninsured residents.