Mohammed Niraz Buhari | How The Pandemic Impacted the Reinsurance Industry

Niraz Buhari CEO of the C&C Insurance Group said the Pandemic caused unanticipated disruptions in the global economy due to lockdowns

Until the start of the Coronavirus pandemic, property, and casualty (P&C) reinsurers focused mainly on models that would make them resilient against natural and manufactured disasters. Climate change was a top concern. However, the Pandemic overtook it as the top concern shortly after it started.

Mohammed Niraz Buhari the Ceo of the C&C Insurance Group said the Pandemic caused unanticipated disruptions in the global economy due to lockdowns and generated increased pandemic-related coverage. As a result, COVID-19 has highlighted the need for new protections, threatened reserves and demonstrated the need for a more sustainable cost structure.

It is positioned to accelerate the shift towards risk advisory and loss prevention services, focusing on new and emerging risk classes and usage-based products. Reinsurance rates have been rising, and experts expect this trend to continue.

Decrease in Global Trade and its Impact on Insurance Demand

The decrease in global trade potentially led to the decline in demand for insurance in certain instances. This loss of business can affect the budget and profitability of insurers associated with international trade. Some notable changes to how insurers have had to adjust their business can be seen below:

Around the world, we have seen changes in calculating liquidity strains, capital calculations, balance sheets, and scenario tests.
Governments gave relief to insurers in countries like the UK, Mauritius, and Kenya to file statutory returns to reduce the effect of COVID-19 curfews and travel restrictions.

In some instances, insurers may have seen a reduction in claims in the areas of theft and accidents during the lockdowns and travel restrictions.

Some insurers have refunded premiums on motor policies and offered discounts to policyholders on renewals.
New risks and disputes on contract details.

C&C Group Ceo Niraz Buhari has confirmed that P&C reinsurers face risks in both contracts that do not explicitly mention but involve components of pandemic risk exposures and agreements that explicitly involve pandemics.

The former happens because no one could anticipate pandemic risks. The latter occurred many times through event cancellations due to the Pandemic. Aside from event cancellations, significant risks included in COVID-19 related contracts include Surety, Trade Credit, and Political Risk. Insurers most probably signed such contracts due to experienced and anticipated disruptions in supply chains and trade.

Other unanticipated reinsurance risks resulting from the Pandemic.

As mentioned previously, COVID-19 caused lockdowns and disruptions in business, trade, and supply chains across the globe. This phenomenon caused increases in unemployment and slowing of economic growth. These unanticipated changes have created a domino effect impacting critical areas such as mortgage protection lines.

For reinsurers, exposure to affirmative pandemic exposures has been low mainly because of the vast potential claims involved.
Silent exposures, which have not been explicitly stated in contracts, have more significant exposure as they simultaneously affect multiple lines.

Niraz Buhari said The Pandemic has brought silent exposure through loss of profit limits, business interruption limits of coverage, and contingent business interruption.

Some reinsurers have excluded pandemics from their non-life reinsurance contracts and offered coverage on pandemics explicitly or separately in instances to avoid challenges.

Court challenges and client disputes

Following the Pandemic, issues have arisen with P&C companies who sign contracts silent on pandemic risk. Some P&C companies have lost court cases that originated from client disagreements on whether business interruption limits included pandemics.

Differing arguments have been generated on whether the Pandemic affects property business interruption via denying access to property, compulsory governmental closures, or the Pandemic's economic impact. There have also been debates on the wording of contracts.

The US, for instance, is thought to have a good number of property policies and manuscripts that exclude business interruptions. Across the globe, some manuscripts and guidelines are pretty unambiguous, others ambiguous, and there are many variations in between. Contracts need to be worded clearly on the nature, length, and notification dates to avoid misunderstandings and legal disputes.

The Coronavirus pandemic led to reinsurers in the UK, continental Europe, Canada, and other parts of the world being exposed to more policies than they thought existed.

Within the last 100 years, there have been about ten pandemics/epidemics. It is reasonable to think that insurers can build models around previous pandemics. However, we do not yet have a working model for reinsurance of disaster risk. It would take public-private partnerships to deal with the financial ramifications of pandemics and better manage the rather complex landscape of risk identification, risk mitigation/reduction, and risk funding and transfer as per Mohammed Niraz Buhari.

Experts in the reinsurance industry believe that reinsurance markets have been paid disproportionately more minor than the exposures they have taken on in the COVID-19 era, a situation they see as unsustainable. Thus, pragmatic steps need to be taken to develop sustainable models.

Post COVID-19 Market Outlook

Market demand for COVID-19 and future pandemics re/insurance has increased. However, markets are tentative in offering exposures because they cannot predict governmental response or quantum loss. This situation makes it difficult to predict the profitability of such exposures. In addition, some reports have explicitly excluded non-life reinsurance, such as Insurance-Linked Securities (ILS). Thus, there will likely emerge a pandemic�"specific market that would absorb excluded risks. However, the feasibility of this depends on the availability of reinsurance. Otherwise, markets may decide to remain silent on non-excluded exposures. In this case, reinsurers would have to create clash reinsurance coverage-to cover insurance across several lines when there is a systematic loss- for their cedants.
Many stakeholders have advised that insuring pandemic risk may be too risky. Others are of the thought that reinsurers can- at a remote level- protect cedants against pandemic risk but only when the probability of occurring is low. Thus, contracts may include a small threshold, such as the imposition of government lockdowns or notable deaths due to the Pandemic.

Due to the difficulty in predicting the size of losses, these products are primarily non-indemnity index-based, with limited indemnity. Otherwise, insurers who cannot insure such losses can exclude them. In such instances, government interventions that encourage commercial reinsurance while creating government pools

Ian Brown

British Insurance News