The Covid-19 pandemic could result in a potential $80bn in insurance losses across the US and UK in various business lines

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The Covid-19 pandemic could result in an estimated $80bn in losses across the US and UK insurance sectors, according to a new forecast.

The insurance consulting and technology arm of Willis Towers Watson has made predictions on the potential Covid-19 insurance losses across a number of scenarios.

The losses account for US and UK business interruption, contingency, US directors and officers, US employment practices, liability, US general liability, US mortgage, trade credit and surety, as well as US workers’ compensation.

How much will Covid-19 cost in insurance losses?

Willis Towers Watson split forecasts into three scenarios:

  • Optimistic: a return to a “pre-Covid-19 state” following three months which results in £11bn ($13.8bn) in Covid-19 insured losses
  • Moderate: a gradual return to “pre-Covid-19 state” after nine months of social distancing to a cost of £32bn ($40.2bn) within the selected lines and geographies
  • Severe: a health impact similar to the 1918 flu epidemic and insured losses of $80bn.

Alice Underwood, global leader for insurance consulting and technology at Willis Towers Watson, said: “Beyond its devastating human cost, the Covid-19 pandemic has swiftly upended economic activity around the world.

“At this point, it appears that the industry-wide level of general insurance loss could exceed that resulting from the 2001 World Trade Center event.

“Given the potential scale and systemic nature of pandemic loss, discussions about the need for some sort of government backstop to address future pandemic risk have already begun.”

Motor not safe from Covid-19 insurance losses

Willis Towers Watson also estimated the effect on US and UK motor classes.

It stated that insurers with large motor books, particularly in the US, will record a material drop in incurred claims due to social distancing.

In addition, this will enable significant premium rebates.

Christopher Bozman, senior director at Willis Towers Watson, said: “Based on our ‘moderate’ scenario, we estimate a potential drop in US personal auto losses of $40bn relative to expectations going into 2020.

“However, premium rebates given by auto insurers already may exceed $10bn and could continue to grow.

“The ultimate extent of rebates is highly uncertain and will depend on insurers’ reactions to emerging data related to frequency reductions.”