Beijing’s directive for insurers to cover Chinese companies’ business interruption losses caused by the COVID-19 outbreak could pose risks to the underwriting stability of P&C insurers, according to a report by Fitch Ratings.
The report said that these risks could emerge due to the limited data available to actuarially price these products at an adequate level, as well as the speed at which these products are being brought to the market. These policies aim to support the restarting of the Chinese economy, by returning to work, after the lockdown to contain the spread of the coronavirus.
However, the report said that return-to-work (RTW) insurance products are unlikely to cause material systemic risks to the non-life insurance sector due to limits on the scope and eligibility of the product coverage.
These products mostly provide coverage against two kinds of risks – liability for an employee’s illness and death, and risks related to business interruption associated with property shutdowns due to infection.
According to Fitch, the pricing adequacy of RTW insurance associated with COVID-19 is highly uncertain, as the pandemic is not yet fully understood domestically and globally. The lack of reliable and accurate historical data points makes it difficult for insurers to price the products accurately.
As the outbreak continues to unfold, demand for RTW insurance products is likely to persist in the short term. The market’s banking and insurance regulator said that 68 Chinese insurers have launched coronavirus-related products since the outbreak’s onset. A huge number of factories, offices, and shops were locked down before the Chinese government eased travel and business restrictions following a decline of infections in March.
