Recently, Dowling and Partners’ Gary Ransom spoke to AAIS CEO and President Ed Kelly during the Virtual Main Event, discussing how COVID-19 will touch nearly every aspect of the insurance ecosystem. The impact is pervasive. In fact, according to Mr. Ransom, the COVID-19 pandemic is on track to become the largest insurance event in history, according to one industry expert.

Mr. Ransom expects, the industry could see up to $100 billion in losses – more than twice that of Hurricane Katrina in 2005. The losses are both immediate, with event cancellations, short-term business interruption, and rising accident and health claims, and long-term, including workers compensation for essential workers and court interpretations of business interruption and liabilities.

Despite massive losses, Mr. Ransom believes there are small pockets of unexpected good news for the industry, particularly in the commercial and personal auto space. As people stay home, accident claims are down by up to 50% (as of mid-April) triggering a return of premium for personal auto policyholders. He also expects the move of many companies towards fully remote work to impact some areas of commercial coverage.

The long-term effects of COVID-19 will depend largely on the legislative response. Mr. Ransom expects a rise in social inflation to push claim payments higher, particularly in
the health insurance and medical malpractice spaces. The need for a quick payout in a cash-strapped, recession-driven economy might result in the need for faster settlements as well.

Mr. Ransom cited the reinsurance market as an area to watch, noting the high amount of capital available to reinsurers as pension funds start to diversify. Dowling has watched reinsurance rates decrease in the last decade as pensions, securities and cat bonds pushed rates down. As a result, reinsurers were satisfied with lower rates of return, often accepting rates under 10% with a lower chance of losing money. The pricing models updated in the last few years resulted in an overall expansion of capital.

For insurers, Mr. Ransom suggests a strong underwriting program is the key to success. Dowling looks at long-term success of companies in their growth of book value over the last thirty years, correlated with stock price, and found that competitive advantage consistently lies in underwriting and premium rate management.

Looking ahead, Mr. Ransom feels insurtech will continue to impact the industry’s operational efficiency as it responds to not only updating legacy processes and systems, but to the massive amount of data now available. He cited telematics as an area to watch, suggesting that insurers who can successfully leverage telematic data for more sophisticated rate development may transform the personal auto insurance space.
The impact of insurtech on the industry, Mr. Ransom suggests, lies not as much in technology advancements, but in modernizing operational efficiency to return greater value to the customer.

For more of the discussion between Mr. Ransom and AAIS CEO Ed Kelly, check out the VME Library.