Coronavirus economic fallout to put pressure on Southeast Asian insurers - AM Best

The claims impact from the coronavirus outbreak is likely to be manageable for Southeast Asian insurers, but will be "unfavorable" for their investment activities, revenue generation and day-to-day operations over the coming months, according to a new report by AM Best.

The general economic impact and resulting slowdown of business activity could pressure insurers in the region, with potential direct impacts expected from medical, personal accident, mortality, travel and business interruption claims.

However, AM Best noted that the low number of COVID-19 cases in Southeast Asia, epidemic policy exclusions and governments’ undertaking of diagnosis and treatment costs are some of the factors likely to limit the potential loss outcome for the insurance industry.

According to a report titled, 'Southeast Asian Insurers Face Uncertainty in Wider Economic Fallout From Coronavirus Outbreak', the future effect of COVID-19-related claims on Southeast Asia insurers’ remains closely linked to and largely dependent on the spread of the virus in this region over the coming months.

A number of larger non-life insurance companies, which operate in coronavirus-affected markets–including Singapore and Malaysia, have made announcements regarding the coverage of COVID-19 claims and in some cases, enhanced the benefits for those diagnosed with the coronavirus, even for policies with exclusions for “wide spread diseases” and “virus outbreaks.”

The announced benefits included hospital cash; lump-sum payments if diagnosed (essentially treating COVID-19 as a critical illness); waiver of waiting periods for new policies; faster claim payments and a general relaxation of the rules around claim submissions. Policies amended with such benefits were typically effective from January 2020 through to the end of April 2020.

There have also been a number of life insurance companies, which have announced new coronavirus-related benefits, such as cash payment on diagnosis, hospital cash and a premium payment extension period for those diagnosed–for both new and existing life insurance customers. Such a move provides support to policyholders and helps to protect the company from mortality claims by encouraging policyholders to seek timely treatment. AM Best said the new coronavirus coverage benefits are likely to serve as an incentive for prospective customers.

The agency stated that the reinsurance industry is also carefully looking at the spread of COVID-19 and related insurance claims in order to determine its potential exposure. Many life insurers in Asia do not have reinsurance protection for extreme mortality, such as epidemics, while health reinsurance contracts are mostly purchased on a proportional basis and local insurers often have relatively low retention limits. As a result, should there be an increase in health insurance claims, reinsurers are likely to pick up a share of the losses, it said.