COVID-19-Three Scenarios for Insurers

At the time of this report, the world is responding to a pandemic of respiratory disease spreading from person-to-person caused by a novel (new) coronavirus. The disease has been named “coronavirus disease 2019” (abbreviated COVID-19). The disease is spreading rapidly across the world, poses a serious health risk, and is causing economic distress.

Many countries, including the United States, have been taking measures to prevent transmission, including shelter-in-place orders and social distancing. Many businesses are asking employees to work from home, and in the United States more than 70 million have been ordered to stay at home (as of March 23, 2020) except for essential purposes such as getting health care, shopping for groceries, or going to pharmacies. This has resulted in closures of many small businesses and a rise in unemployment.

As a new disease with no vaccine, it is impossible to say what the impact of COVID-19 will be. We don’t yet know the rate at which it spreads, the death rate, or when a vaccination will be available. However, we know that the rate at which it spreads is high, and that under certain conditions—such as those seen in Italy—the death rate is also high. Between the rising number of cases globally, the closing of small businesses, and rising unemployment, the impact on the insurance industry could be significant. How are insurers responding today? And what should they be taking into consideration for the future when no one knows what the future holds?

We’ve laid out three possible scenarios of how COVID-19 may impact the insurance industry. We acknowledge that not all possibilities are accounted for and we have not thought of every potential outcome for every insurer. Note that we are not epidemiologists, economists, or professional risk managers, but we hope that laying out these scenarios will jump start insurers’ own scenario planning.