What's going on?
Lloyd’s of London may feel it’s got more in common with Dumb and Dumber than just its lead character’s name: the world’s largest insurance market revealed a first-half loss on Thursday that could spell big costs ahead for insurers and insured worldwide.
What does this mean?
Lloyd’s – also not to be confused with the British bank of the same name – is an odd fish in the insurance world. The historic marketplace’s 90 “syndicate members” insure people and businesses, including other insurance companies via “reinsurance”. Its broad span therefore makes it a good barometer for the insurance industry as a whole – and that barometer’s currently reading “high pressure”. Over the last six months, Lloyd’s made a $530 million loss before tax, largely due to $3 billion of coronavirus-related payouts in the period. What’s more, it expects to fork out another $3 billion throughout the rest of 2020.
Why should I care?
The bigger picture: So you’re telling me there’s a chance…
Back in March, Lloyd’s estimated insurance companies around the world – excluding life insurers – would end up on the hook for more than $100 billion in coronavirus claims due to disruptions to travel, events, and trade. But they’re not taking it lying down: UK financial authorities are currently contesting insurers’ avowed lack of liability for certain pandemic-related claims which typically apply only in cases of physical damage. The outcome could lead to higher costs (or savings) for insurers everywhere…
Zooming in: Our pets’ heads are falling off!
The key measure of an insurance company’s profitability is its “combined ratio”. This shows losses and expenses as a percentage of revenue from premiums, revealing how good an insurer is at profitably selling policies. The Lloyd’s ratio was 110% in the last six months compared to 98.8% the same time last year, when the firm made a $3 million profit. Insurers trying to recoup their 2020 losses by charging more for protection could make your travel, health, business – and, yes, parakeet – insurance more expensive.