How much Chubb predicts COVID could cost the industry

COVID-19 could ultimately cost the global property and casualty insurance industry somewhere in the neighbourhood of US$75 billion in claims, Chubb Limited CEO Evan Greenberg suggested Wednesday.

Zurich, Switzerland-based Chubb released its financial results for 2020 on Tuesday. During a conference call Wednesday to discuss the results, a stock-and-bond analyst asked Greenberg about the overall impact of the global pandemic on the industry’s claims costs.

“We had pegged that underwriting loss somewhere in the US$70 to US$80 billion range and I think it is ultimately going to play out there,” Greenberg said of the global P&C industry.

The World Health Organization declared COVID-19 a pandemic on Mar. 11, 2020. Since then, the impact on the world economy has included cancelled sporting events and widespread emergency measures affecting entire industries including restaurants, hotels, event venues, and airlines, among others.

In Canada, several nursing homes and long-term care homes have been named in class-action lawsuits. In May 2020, the Corporation of Lloyd’s predicted the pandemic will ultimately cost the global P&C insurance industry more than US$100 billion.

At the moment, the industry has recorded charges from COVID-19 at about US$35 to US$40 billion, Greenberg suggested Wednesday during Chubb’s earnings call. “That number is going to continue to climb,” he said.

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During his opening remarks, Greenberg said the pandemic “might be more accurately viewed as endemic, and which, despite the efficacy of vaccines and therapeutics, will likely be with us for years to come.”

Chubb was known as ACE Limited until 2016, when ACE closed its acquisition of Warren, N.J.-based The Chubb Corporation.

Chubb said Tuesday it did not take any COVID-19 related claims charges during the last half of 2020. During the first half of 2020, Chubb reported July 7 it took a US$1.365 billion pre-tax charge related to COVID-19. Much of that was for claims incurred but not reported. Chubb’s US$1.365-billion charge takes into account anticipated future claims for entertainment, business interruption, surety, accident and health, travel insurance, workers compensation, directors and officers, employment practices and professional liability, among others.

The “vast majority” of that US$1.365 billion COVID-19 charge is for claims incurred but not reported, Greenberg said Wednesday.

“I don’t think (business interruption) has run its course,” he said of industry-wide losses arising from COVID-19. Greenberg was alluding to commercial clients trying to get insurance to cover revenue losses resulting from lockdown measures that are intended to prevent the spread of the virus.

Chubb reported Tuesday that  its combined ratio improved 5.5 points from 96.1% in 2019 to 90.6% in 2020. Net premiums written rose from US$32.3 billion in 2019 to US$33.8 billion in 2020.

Overall, Chubb’s rates in North American commercial P&C increased 16.5%, Greenberg said.

The improvement in Chubb’s combined ratio at a time when rates continue to rise prompted one analyst to ask Greenberg what Chubb does to keep their commercial customers from taking their business elsewhere.

“There is no magic sauce about this,” replied Greenberg. “Frankly, our communication begins early and is continuous with all of our clients and customers. We endeavour not to surprise. We explain very clearly to our client the reason for need for rate increase. We give (clients) a lot of transparency around the loss cost environment, around our (return on equity) hurdles, around our appetite for risk.”

Chubb normally does not provide only one or two products to commercial clients, said Greenberg.

“We serve them largely across virtually all of their needs,” said Greenberg, implying a client is more likely to renew with its insurer if it is buying multiple coverages from the same insurer.

“The secret? We do it on a local basis. It isn’t simply that we operate from two or three hubs. We are where [clients] do business.”

Feature image via iStock.com/matejmo