Most economic losses stemming from the deadly COVID-19 pandemic will not be insured, and the most notable takeaway for insurers is likely to be the magnitude of the protection gap.

That’s not to suggest that insurers have set themselves up to take advantage of the situation. Most classes of insurance don’t cover pandemics because their scope and impact isn’t measurable. Nevertheless, insurers will not escape unscathed.

COVID-19 is already impacting the insurance industry in multiple ways—from employee and business continuity issues to client service considerations to the financial outlook.

While insured losses may only equal those of a moderate natural catastrophe, plunging investment returns are a primary concern. Some insurers’ solvency ratios have already dropped to what Willis Towers Watson warns are “alarming levels” after US stocks fell 28%.

“The general insurance industry will not be one of the most heavily impacted sectors,” Finity Consulting Principal Estelle Pearson says. “However, the impacts are not necessarily immaterial, and careful thought is required to enable insurers to get a handle on the implications.”

Willis Towers Watson says the main concern for insurers and reinsurers right now “is the reductions in the investment side of the balance sheet”.

The pandemic could wipe $US1.3 trillion ($2.2 trillion) from the world economy – 25 times more than the economic loss from the SARS outbreak in 2002/3 – and insurers will need to renew most of their annual insurance and reinsurance contracts while the catastrophe is still ongoing.

Ms Pearson says interest rate cuts to emergency levels will weigh heaviest on life insurance and annuity sectors, which have rate-sensitive products and investments. Modifications to products, such as lowering guaranteed rates, may be required.

Meanwhile, property and casualty (P&C) insurers, which hold more liquid assets in case of catastrophic losses tend to be most vulnerable to stock market fluctuations. US P&C insurers, for example, had 23% of their assets in investments in 2018, compared to only 2% by life insurers.

Deloitte US insurance leader Gary Shaw says the big-picture concern is how the outbreak might affect the economy and, in turn, prospects for growth and profitability in insurers’ underwriting and investment portfolios.

“Financially, insurers will likely need to adjust their budgets and implementation plans, cash flow expectations, and investment portfolios in light of recent developments,” Mr Shaw says.

On the most practical level, insurers should establish cross-functional, emergency decision-making teams to coordinate their response, set new safety protocols, and assure quick action.

New cybersecurity protocols may be needed to permit the safe exchange of confidential information among employees connecting from outside the office to support social distancing, Mr Shaw says. Insurers which have invested in advancing their digital capabilities will likely be better-positioned in the short term.

Individual lines of insurance will fare very differently from the COVID-19 outbreak.

Event-cancellation cover is likely to generate a large proportion of the overall insured loss and gatherings for sport, music, worship and celebration are likely to struggle to obtain insurance for the foreseeable future.

In cases of cover with no “notifiable disease” exclusions this could exceed assumed probable maximum losses for larger events cancelled between March and December 2020, Willis Towers Watson warns.

The Tokyo Olympics, for example, is anticipated to have an insured value of around US$2 billion ($3.39 billion). While the July event is still going ahead at this stage, the international clamour for its postponement is rising.

Credit insurance is likely to see higher claims due to supply chain disruptions. This will most affect marine lines, travel, tourism, entertainment and retail – with the exception of supermarkets.

This cover may see rate increases, payment terms shortened and limits being reduced or removed, especially in sectors and countries badly impacted by the virus.

Liability insurance claims could be seen as inevitable. Litigation – particularly class actions – against cruise liner operators, hotels, nursing homes and private schools are possible, and there may be directors’ and officers’ and errors and omissions liability losses to cover.

Claims may be mounted against the fall in share prices for manufacturers who developed their supply chains with total reliance on products from China not being interrupted.

And workers’ compensation payouts could be triggered from such customer-facing people as infected hospital staff, cruise liner crews, flight crew, retails sales staff and taxi drivers.

For reinsurers, the biggest potential payouts would be triggered in life insurance if the pandemic led to hundreds of thousands of fatalities.

For life insurers, terms around age should limit payouts, assuming higher rates of mortality do not develop in those of working age.

Claims are likely to be reduced across a number of classes by new restrictions on movement and reduced economic activity, and health insurers can even expect a surge in new policies after the outbreak, as was experienced in Asia following the 2003 SARS outbreak.

Of course, where there is adversity there is insurance opportunity. Could pandemic be regarded in the future as an insurable peril? Willis Towers Watson says that if it isn’t, the question of liability for any future outbreak must be considered.

COVID-19 also signals opportunities for untapped insurance market growth in the future. With the involvement of insurance and a formalised understanding of the risks and necessary control measures, resilience to similar events in future could be strengthened.