While we are only a couple of weeks into our widespread social distancing measures related to this historic pandemic, the COVID-19 outbreak and the measures to contain its spread have already created profound effects to the Workers’ Compensation insurance and reinsurance markets. The transmission of the virus has led to coverage questions for both insurance and reinsurance. Meanwhile, the government mandates to contain the spread of the disease has led to considerable operational and economic hardships for businesses around the U.S. (and the world at large).
BMS Re US’ Workers’ Compensation Specialty Practice Group has spent the past few weeks discussing these matters with our clients and reinsurance markets in order to make sense of this extraordinary time, and have compiled our view of the short-term and long-term market implications of the COVID-19 pandemic and the effects to the Workers’ Compensation (Re)-Insurance market.
Key takeaways include:
- Both insurance companies and reinsurance companies have generally succeeded in transitioning from an office environment, to a remote one.
- Outside of a few unique circumstances on some April 1 and May 1 renewals, BMS is not seeing a great need to extend treaties due to operational reinsurer operational difficulties
- While many states exclude coverage for “Ordinary Diseases of Life.” There will be compensable Covid-19 WC claims to insurers, particularly in certain occupational classes.
- BMS is not seeing “Pandemic/Communicable Disease” exclusions added to recent Workers Compensation treaty placements
- Excess of loss reinsurance treaties will respond to Covid-19 claims, under the OD/CT provisions of “Loss Occurrence” within the reinsurance treaty. Effect on excess of loss reinsurance treaties does not appear material at this time, but this could change.
- Economic effects of “Shelter in Place/Social Distancing” will have a major effect on insureds payrolls ceded premium levels. This will affect minimum premiums on WC XOL treaties, though reinsurers are open to developing solutions for their valued clients.
- BMS expects the NCCI to report decent results for 2019, though 2020 should be a lot more challenging. Could this be the bottom we have been looking for?
- WC reinsurance market will continue to harden, though plenty of capacity remains in place.
- This is the time when cedants will differentiate themselves. BMS is here to tell that story.