Could there be a insurance company default because of the Coronavirus?

Discussion in 'Economics' started by morganist, Oct 19, 2020.

  1. I was just thinking that if the Coronavirus outbreak and lockdown continues it could cause a problem for insurance companies with the payouts they will have to make. I have had a look at the news articles on similar topics but they seem to surround the consequence of the low return the low interest rates and bond yields are producing rather than the payout rate, although the low return problem would be another reason why insurance companies might default.

    Do any of you have any thoughts on the issue or the risk of a large scale default in the insurance industry if the lockdown continues? Life insurance policies will be heavily claimed due to the death rate, then there are all of the other claims from loss of earnings and the cost of being infected even if the person makes a recovery. Do any of you have a contingency plan if this happens? If so what would you do if the insurance market crashed and what do you think the impact would be on the stock market?
  2. Some insurance/companies have a "force majeure" provision that lets them weasel out of paying claims. Would Covid qualify?? I dunno. For "business continuation" risk, perhaps?

    Life insurance, however, would have no such "weasel out" provision for Covid.... death rate is much too low, regardless. (Even suicide is not an "out" for an insurance company to avoid paying the death claim... once past the statutory exclusion... which basically is 1 or 2 years from issuance of the policy, suicide is regarded as just "another ordinary life risk"... like heart attack or traffic accident.)
    Last edited: Oct 19, 2020
  3. wrbtrader


    Which country you're talking about ?

    Some countries government or insurance companies are covering patients including disability that results to loss of earnings.

    Yet, I see a nightmare in the near future when people try to switch insurance or get new insurance for the first time and they've been Covid-19 positive but didn't require any hospitalization because they had very little / no symptoms.

    Simply, insurance companies will then deny coverage via saying Covid-19 will then be consider a "pre-existing medical condition".

  4. BMK


    Insurance carriers re-insure themselves against major losses. I can't possibly explain how it actually works. But insurance companies literally insure each other to spread the risk around. Google the term reinsurance.

    And most of the major insurance carriers are too big to fail.

    VPhantom likes this.
  5. Yes, but that doesn't answer the question of "could Covid be so wide-spread and cause so much loss that insurance companies might default"?

    As to Property and Casualty insurance, re-insurance is about "spreading the risk from a geographical area". Covid, however, has the potential to affect EVERYWHERE. Can that type of risk effectively be "spread around"? That's a legit question for which I have only speculation for an answer.
  6. Any or all countries. If there are too many claims I can't see the insurance industry being able to make all of the payouts, so either they default or people don't get a payout.
    wrbtrader likes this.
  7. Nobert


    Thinking :

    average death age older than average death age, thus the covi victims already had problems with getting insurance in the first place.

    99% of dead ones had UC, thus, same story as above.

    Insurance (health related) bis, actually done better in these days, since fear - is the best salesman.
  8. OK, assuming the insurance companies have reinsured and that it is sufficient to prevent default, which could be questionable if the payouts for the Covid outbreak become too high, wouldn't the cost of making the payouts hit the profit margins massively and impact corporate returns causing a different type of market problem of lower profit margins and lower returns on investments. This is itself could impact the stock market value and may be an issue, which is likely to occur in the insurance industry.
  9. What about the cost of insurance payouts for people who have been put out of work from the lockdown and lost other things as a result of the lockdown that are covered by insurance? Surely there would have been massive insurance claims to cover the cost of the lockdown, the longer it goes on for even at reduce rates the greater the impact on the insurance industry. Then there is the risk of a second and third wave of the virus and the future payout liability the insurance industry will face.
  10. wrbtrader


    So you think insurance companies are going to do better overall ?

    I remember getting private disability insurance back in 2014...a pain in the butt.

    It payed off when I almost died in the fall of 2016 that resulted in hospitalization for many months including extensive therapy in 2017. Still insured by them today and can't imagine how they would treat someone that had a preexisting medical condition because of Covid-19.

    I now see a ton of lawsuits happening about payout liability...maybe even class action lawsuits 5 - 10 years from now.

    #10     Oct 19, 2020