The public and private fall-out as a result of Covid-19 is a wake-up call regarding the staggering potential for systemic risks to cause losses that subsequently trigger many different repercussions, according to Munich Re.
The warning was made as part of the reinsurer’s media breakfast during what would normally be the time of the year for the Baden-Baden meeting.
Munich Re stressed that the sheer scale of the Covid-19 pandemic serves as a stark reminder of the need to properly assess and manage low-probability risks that bear tremendous loss potential, adding that this is especially true of risks that are exposed to an underlying deterioration.
However, it noted, it is by definition impossible to insure risks that lead to losses everywhere at the same time, thus violating the fundamental criterion of insurability.
Doris Höpke, member of the board of management at Munich Re, refused to be drawn on possible market-wide loss estimates as a result of Covid-19, saying that we are currently facing a second wave of infections and that this is such too complex and widespread a risk to give accurate loss indications at this stage.
Höpke also raised the issue of the possible long-term implications of Covid-19 as a concern for the life insurance market, though she stressed that any pay-outs on the life side will almost certainly be considerably less than those for non-life losses.
The effect of the pandemic on the cyber re/insurance market was also a subject of discussion.
Munich Re noted the coronavirus pandemic has also indirectly affected the rapidly growing insurance segment for cyber risks as lockdowns forced most office staff to work from home and many companies to migrate many business operations online, followed by a sharp rise in cyber-attacks.
The company said that the market for cyber risks remains one of its most important strategic growth areas, with additional, pandemic-fuelled momentum from digitalisation and companies’ rising awareness of cyber risks a potential further boost to a market already exhibiting robust growth.
Indeed, it suggested that the cyber insurance market could even surpass the current forecast for premium growth, from slightly above US$7bn in 2020 to around US$20bn in 2025.
As is traditional at this time of year, Munich Re also gave an appraisal of rating conditions, noting that the low interest rates are likely to remain even lower for even longer due to the coronavirus pandemic, further impacting the profitability of reinsurers already faced with years of soft market conditions, especially in Europe.
As such, it added, insurance covers are therefore likely to become more expensive, particularly for long-term risks in third-party liability and other lines.