Singapore:
COVID-19 related charges, booked in the first half of 2020, by insurers and reinsurers globally, are broken down as 90 percent P&C, and 10 percent life,said Denis Kessler, chairman and chief executive officer of SCOR.
“COVID-19 related charges booked in H1 2020 by insurers and reinsurers globally, which total more than $20 billion,are broken down as 90 percent P&C, and 10 percent life. So pure P&C players are faced with a COVID-19 impact whose magnitude is comparable to that of a major natural catastrophe,said Kessler while speaking at the SIRC 2020 Re-Mind virtual conference on Tuesday..
“One distinct pattern is emerging from the H1 2020 earnings season of the industry: the overall estimated P&C insurance and reinsurance market exposure looks set to be several times greater than the overall estimated exposure for the life insurance and reinsurance market,” he said.
Largely, the exposures were due to inefficiency of public risk management in many countries around the world. The economic cost of the crisis, and the exposure of the P&C market, would have been much less significant had these nations been better prepared and more responsive,he added.,
“All else being equal, the poorer the public risk management, the higher the economic losses associated with the handling of the pandemic and the higher the P&C market exposure to the pandemic event,” he observed. .
He added that this is the biggest surprise of the crisis because it’s the opposite of what, broadly speaking, had been anticipated and modelled for pandemic risk. While the industry was certainly not unaware of pandemic threat, it failed to accurately anticipate the lines it would impact most severely.
A vast majority of risk can be visualised, but a virus spread is invisible, insidious and pernicious. People are infinitely more afraid of dangers they cannot see than the danger they can identify. An invisible risk produces more paralysis and anxiety and is considerably more forceful, he said.
He pointed out that there were other invisible risks that gripped the world in a similar fashion – asbestos, AIDS and nuclear radiation. Before COVID-19, cyber risk had occupied the world’s attention as the foremost invisible risk.
“Pandemic had traditionally largely been considered a life catastrophe risk. The modelling approach for this risk had a very strong life focus, with the P&C and macroeconomic components being treated in a more simplified way.
“As the pandemic is still going on reinsurers need comprehensively to analyse the knowledge gained from the new data points which COVID-19 provides and take this into account for the quantification of future pandemic risk,” he suggested.
“Specific actions adopted by public authorities and central banks globally to prevent the pandemic propagation and to manage the impact of the COVID-19 shock as it has unfolded have profoundly modified the very nature of the risk for reinsurers,” he said.
“In retrospect, most of the insurance and reinsurance market exposures to the COVID-19 pandemic are directly driven, or at least heavily influenced, by endogenous factors,'' stated .
A notable feature in relation to COVID-19 has been the strong impact of government and central bank decisions on life risk exposures and P&C risk exposures.
“Political decisions have substituted life exposures with P&C exposures.Each country has made explicit or implicit trade-offs when deciding the extent to which it should prioritise public health or the economy,' he said.
“Many countries have clearly decided to prioritise health above all else; the COVID-19 pandemic shock has shown that the value placed on the absence of suffering, on life, has risen very substantially throughout the world,''he reflected.
The far-reaching lockdown measures implemented worldwide were largely underappreciated by pandemic models. This is the main reason that predictions of many of those models have turned out to be completely off the mark in the present context,he opined.
This crisis has shown that most of the industry had previously viewed pandemic risk through “too narrow a prism”. The modelling approach for this risk had a strong life focus, mainly looking at the probability distribution of the number of victims, with the P&C and macroeconomic components being treated in a much more simplified manner, said Kessler.