The Other Side Series: The State of the Insurance Market Post-COVID

By Mark Manzi, National Brokerage Leader

The Other Side Series: The State of the Insurance Market Post-COVID

After 18 months of lockdowns, quarantines, and impacts to our personal and business lives, we are beginning to enter a post-COVID phase. Companies of all sizes have announced plans to reopen offices by fall, or sooner. As restrictions are lifted and things inch closer to “normal”, there is much to be happy about. We’re reuniting and most businesses that were hurt most by shutdowns and capacity restrictions are returning full or at least partial force. In the midst of these celebrations, the reopening presents an uncharted landscape and unique challenges for the insured and for insurers. There are a number of risk factors and considerations to keep top of mind in the coming months.

Backlog of Claims

One of the most pressing issues is the backlog of cases in the judicial system. COVID-19 slowed the functions of the courts, holding up many insurance claims in key jurisdictions such as New York. As the courts work through these, there is substantial potential that insurers will be financially impacted by the wave of claim settlements. This “shock” could lead to prolonged rate increase in the property and casualty insurance market. 

Work from Home Implications

Employees who transitioned from working in an office to working from home often found themselves working at dining room tables or other improperly set up workstations. We are already beginning to see an increase in claims under benefit programs for neck and back issues related to working from home. Employers could suffer an increase in workers’ compensation claims if they have not provided clear guidance on how to create an ergonomically appropriate workplace in the home for example.

In addition, the work from home model has elevated the risk for cybercrime. With an increased reliance on online interactions, fraud is on the rise within accounting, HR, and other areas of business. Cyber policy rates were already spiking, and any additional exposures in the post-COVID world will increase underwriters’ need for higher premiums and reduced coverage.

Real Estate Exposures

When offices shut down, businesses and city-based real estate companies felt the loss deeply. Some companies have vowed to continue operating fully remote long-term, others are opting for a hybrid model, both of which will likely reduce their need for office space. This means that some office buildings will be repurposed, changing exposures in an already complicated market.

Additionally, as restaurants and other store-front businesses have permanently closed, real estate owners face an increased risk for unoccupied properties and reduced rents. Companies who own these vacant properties may be forced to reduce or eliminate loss prevention expenditures leading to increased risk and as a result, higher premiums. 

Business Interruption

The entire insurance industry has been watching the outcomes of business interruption claims related to COVID-19. While many were denied outright and supported by various courts, there is still potential for business interruption claims to be awarded in some venues. Should the courts find that those businesses are owed coverage, significant financial implications could arise for insurance carriers.  With the already growing losses derived from natural disasters in 2020 and 2021, any additional catastrophic losses from COVID-19 business interruption claims could push insurers back deeper into a hard market just when rate increases have started to fall.

Equipment & Maintenance

Several industries experienced production halts during the pandemic, raising concerns about what will happen when unused equipment is re-started. Proper equipment start-up protocols are recommended to avoid mechanical and electrical breakdowns. Any equipment that did not receive proper maintenance throughout an extended shutdown period presents a potential risk.

As many businesses come back to life, it is crucial that management takes the appropriate steps to ensure the facilities are safe in terms of cleaning, disinfecting and employee testing. Installing upgraded air purifying equipment is likely the cost of doing business in a post-COVID world. If businesses cut corners in any of these areas, they could face expensive losses and potential lawsuits.

Health Care Workers’ Compensation

The pandemic has no doubt altered the health care insurance market. Fearing costly repercussions from COVID-related claims, some insurers reduced or outright eliminated capacity for workers’ compensation. Once insurers better understand the true loss and exposure associated with these claims, we expect them to reintroduce workers’ comp capacity, and potentially make pricing adjustments.

What’s Next

As we embrace the joy of returning to a semblance of ‘normalcy’ in the coming months, business leaders across industries must be prudent and recognize the exposures related to reopening. COVID-related insurance concerns will continue to unfurl, while ongoing cyber security and ransomware demands and increasing severe weather issues also pose urgent threats to the stability of the market. Insureds should proceed with caution and consult with the experts in weighing all possible risks when making post-COVID business decisions.

In the coming months, Risk Strategies experts will dig into each of these risk factors in-depth, exploring implications across industries. Follow along as The Other Side series continues.

The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.