Pandemic breeds increased insurance exposures: Report

The COVID-19 pandemic has reshaped global economies and created a host of new risk exposures, Swiss Re Ltd. said in a report released Tuesday.

The greatest risks for property and specialty lines are those associated with restarting suspended operations, which could portend larger accidents ahead, Swiss Re said.  

The COVID-19 pandemic led to budget cuts and mothballed facilities, such as in oilfield services, where aggregate maintenance budgets were cut by $20 billion last year, Swiss Re said.

“There is heightened accident risks in rushed start-up actions as businesses seek to return to normal. In turn, this could lead to large losses in property and casualty insurance,” the report said.

Poorly maintained facilities have a higher propensity to large accidents such as fires, explosions, spills or toxic releases, which can lead to large property, casualty and environmental liability claims, the report said.

So-called zombie companies, which are nonviable firms that have been sustained by COVID-19-related government stimulus payments, may not be able to pay back their loans, introducing future risks and new challenges for insurers in deciding which firms are insurable, Swiss Re said.

Aside from the pandemic, a lack of diversity in product testing may lead to more product liability lawsuits, the report said. Evidence suggests that crash test dummies and medical trials may need to more accurately reflect changing demographics to increase car and medical safety.

Also posing risks are an increasingly litigious environment, which Swiss Re says is one of the drivers of U.S. insurance claims costs rising faster than economic inflation, or so-called social inflation. “Litigation funding has grown over the last few years, and we expect this to continue,” the reinsurer said.

The rising importance of environmental, social and governance criteria will also pose new challenges. The demand for material ESG-related information and metrics is growing, largely driven by investor demand. Companies are expected to have appropriate governance structures and governance priorities to address ESG issues. This will affect investment activities for both insurers and reinsurers, as well as their liabilities and operations, Swiss Re said.