Insurers failed to anticipate the full economic cost of Covid-19 because they did not foresee how far governments would go to protect their populations, according to the head of reinsurer Swiss Re.
Christian Mumenthaler, chief executive of Swiss Re, said governments had not reacted in the way many of his industry’s models anticipated, an implicit acknowledgment that they had not factored in the possibility of lockdowns.
“The one thing none of us has assumed was . . . the higher weight on human life than we had thought,” Mr Mumenthaler told the Financial Times. “The value of human life got massively higher . . . We hadn’t foreseen that they would close down everything.”
“The whole industry will have to review some of these models,” he added.
The pandemic has left insurers facing an unexpected torrent of business interruption claims from companies suffering losses caused by coronavirus lockdowns.
In courts across the world, some insurers are forcefully contesting such claims by arguing that their policies were never intended to cover the economic costs of a pandemic.
“The whole business interruption topic was not on the radar — it was not foreseen,” said Mr Mumenthaler.
His company has forecast that the crisis will cost the property and casualty insurance industry as a whole $50-80bn in claims payouts on policies ranging from travel to event cancellation. The losses have been so severe that the insurers are pushing through a wave of price rises on their policies.
By contrast, health and life insurance claims during the pandemic have been relatively low.
Swiss Re itself — which provides back-up cover for primary insurance companies — expects to pay out $3bn, of which just under $700m covers health and life insurance. However Mr Mumenthaler said it would be “a long time” before the final figure became clear.
Like others in the industry, he argued that new systems should be put in place to cover future pandemics. “The only viable option in my view is for governments, who had to jump in anyway, to think about what mechanisms they want to have in future to be more effective and efficient in the next pandemic,” he said.
Insurance companies around the world have been lobbying for new government-backed pandemic insurance programmes similar to existing plans that cover terror attacks. But progress has been slow because governments have been focused on dealing with the immediate consequences of Covid-19.
Mr Mumenthaler noted that the global “output loss” caused by the pandemic would be $12tn over 2020 and 2021. “This is massively bigger than all the capital in insurance and reinsurance.”
As well as dealing with the pandemic, Swiss Re has spent much of the year signing partnerships with companies such as Ikea and Daimler in the hope that bringing insurance closer to other purchases would make people more likely to buy it.
“Buying insurance is a highly unnatural act according to neuroscience,” Mr Mumenthaler said. “You have to think about the future, you have to think about negative things like risk . . . buying insurance is a very difficult act.”
“What we’re exploring is: can insurance in the future be part of other products?” He cited a partnership between Swiss Re and Ikea as one example of this approach.
“Ikea wishes to sell homeowners [insurance] but they don’t want to be in a regulated space and so we have a white-labelling insurance platform called iptiQ which could help.”