COVID-19: P&C carriers may face significant losses from event cancellations
Losses for property/casualty carriers that write event cancellation insurance could be significant amid the COVID-19 outbreak, despite the line of business representing a very small percentage of overall P&C premium, according to AM Best.
Swiss Re has recently announced that it has a $250 million exposure to the Olympic Games in Tokyo and an overall market share of around 15 percent of event insurance that could be claimed due to COVID 19. While Munich Re revealed it could have exposure amounting to hundreds of millions of euros. The postponement of the Games could have implications on insurers, depending on the individual contract terms.
The new report finds that losses on this line of business could have a compounding effect as carriers navigate other lines of business exposed in the pandemic, such as business interruption, directors and officers and workers’ compensation, as well as dealing with losses on assets.
"Event insurance is a customised form of insurance, and every covered event is unique and policy wording can vary greatly. Limits can be as low as $500,000, and up as high as $10 million depending on the circumstances, and prices may vary as well. The insured could be an event organizer, sponsor or venue, as well as other stakeholders such as caterers, entertainers and keynote speakers," it said.
The agency noted that communicable disease is not always a covered peril and the applicability of COVID-19 is uncertain. Withdrawals by individuals from events owing to COVID-19 concerns are unlikely to be covered. Prohibitions by local municipalities of gatherings of more than 150 persons or curfews that result in cancellations also would not be covered. For events cancelled following national emergency announcements or state proclamations, event insurance could apply and insurers then would be responsible.
"Broader interpretations of contract language by courts, which increasingly have become tied to social inflation, is a reality that insurers have already been dealing with in recent years. Given the global impact of event cancellations, these interpretations could dramatically impact the results of event insurance providers," AM Best said.
