At the onset of 2020, insurance carriers found themselves under water – literally. Across lines of coverage, from auto to real estate and professional liability to property, carriers were playing catch up from the catastrophic claims of 2016 to 2019.

During these years, hurricanes and wildfires, sexual harassment liability, nuclear verdicts in transportation and property water damage claims all joined forces to send the insurance market into correction. In early 2020, many carriers were operating at combined loss ratios of 100%. And then COVID-19 hit.

To an insurance carrier, 2020 looks like a complex sandwich: Risk piled on top of market corrections, sandwiched in between more risk, and topped off with thick slices of liability. Carriers will ultimately have to decide how much more risk they’re willing to pile on this year and how they’re going to reduce their own exposure.

Reinsurance carriers, the backbone of the insurance industry, have raised their rates across the board as well in anticipation of weaker carriers defaulting and pinching relatively healthy carriers even more.

While not yet an insurance industry disruptor, here are 4 ways COVID-19 is currently affecting commercial insurance:  

  1. The evolving role of the broker. Our customers are looking to their broker for advice more than price these days. We’re spending more time on consultative services than ever before. Topics include COVID-19 privacy and liability employment issues, how to present as a best-in-class risk to underwriters, worker’s compensation eligibility, claims and coverage and more. It’s never been more important to partner with a broker that specializes in your industry, with risk services capabilities and strong carrier relationships.
  2. Increased scrutiny from underwriters. Underwriters are inquiring about every renewal. Before taking risk on, underwriters want to know your business’ pandemic response. What is your business’ level of exposure with COVID? What are you doing to mitigate it? Underwriters will want to know that your business is healthy financially before writing new coverage or even renewing an existing policy.
  3. COVID coverage or lack of coverage is being very specifically addressed. The vast majority of COVID Business Interruption (BI) and Property claims have been denied based on the inability to prove COVID caused “physical loss or damage.” Moving forward, most policies will have very specific language excluding pandemic coverage with COVID coverage most likely cited as well. Where coverage is granted, it will be with specific sub limits and the customer will elect to “buy up”. There is also potential for a federal “backstop” to address the concern at a catastrophic level.
  4. Businesses need to think profit and loss management. There’s a good chance COVID-19 will further impact insurance costs. Prepare now. Look at every line item of your business’ profit and loss margins to see what can be redirected. Have conversations around business strategy and maintain a conservative outlook on spending, while planning for higher insurance rates this year and in the immediate future.

Although current policy limits and cost increases are linked more to historical losses than the current pandemic, the question still lingers: When will COVID-19 exposure catch up to the market? The answer is unknown.

As 2020 unfolds, carriers, brokers and business owners alike will remain watchful for changes in exposure and its resulting effect on the commercial insurance market.

Until then, contact your HUB broker for more information on minimizing your risk and securing the right coverages necessary to do so.