Introduction.

The insurance industry is a vital part of the global economy. Without the risks ameliorating services it renders the global economic outlook will be gloomy. Running a successful business is not a walk in the park, the global economic landscape is characterized by strife competitions, difficult to predict consumer responses to products and services, unfavourable political events and other unforeseen circumstances. One of such unforeseen circumstances is the coronavirus pandemic.

According to studies conducted by the World Bank, the lockdowns, quarantine, travel bans, restriction on social interactions and other government measures to reduce the spread of coronavirus has sent the global economy into a recession. The world bank’s studies showed that the global economy’s growth has declined by 5.2 per cent, the lowest since the second world war. What are insurance companies, and how do they work? How are they faring in the face of the coronavirus induced economic recession?

What are the insurance companies?

Insurance companies offer risk management services by entering into insurance contracts with their customers. The contract typically obligates the insurance companies to pay a certain amount to their customers if they suffer from unforeseen circumstances on the condition that they pay their premiums. A formal request to be paid by the insurance company is called the insurance claim; the premium is a small amount paid regularly to the insurance company that guarantees the customers to be paid should they suffer from unforeseen circumstances. The customer is called the insurer or policyholder, while the subject of the insurance contract is called the insured. The major types of insurance companies are life insurance, health insurance, auto insurance, short term disability and property insurance.

Effect of the Coronavirus Pandemic on the Insurance Industry.

Data from leading global economic analysts are indicating that the coronavirus pandemic is having a considerable impact on the insurance industry. According to a survey carried out by PwC called the COVID-19 CFO Pulse Survey, the global recession is causing an astronomical demand for insurance claims by customers. The most affected are companies offering travel and short-term disability insurance. According to research conducted by the global consulting firm KPMG, the impact of the coronavirus pandemic is more noticeable on companies providing life insurance and health insurance. The pandemic is exposing a lot of health professionals to risk; most insurance companies do not envisage neither do they cover the kind of risks brought by the pandemic. KPMG noted that life insurance companies are suffering from volatility in the financial markets as there is a sharp decline in the demand for their assets. The international credit rating agency for global financial market Fitch has given the global insurance industry a negative rating. According to Fitch, investors in the life insurance companies’ assets are going to lose out as investment suffer loses, Fitch also stated that insurance companies would be burdened by an astronomical increase in insurance claim from health line workers treating the infected.

Although the international credit rating agency Fitch gave the general insurance industry a negative outlook, it noted that some other sectors of the industry might record some benefits. Fitch contended that governmental policies like lockdown would lead to slow movement and a drastic reduction in car accident insurance claim.

Conclusion.

Insurance companies contribute significantly to global economic growth by mitigating against risks from loss from or damage. The coronavirus has exposed the inadequacies of health and life insurance contracts to cover pandemic of the coronavirus magnitude. Stakeholders in this sector need to put all hands on deck and come up with more robust life and health insurance policies.