Insurers are set to pay out on a wide range of policies, from event cancellation to management liability, although there are growing disputes about the extent to which they will compensate for business interruption.
Mr. Neal told the Financial Times that the pandemic was “no doubt the largest insurance challenge the industry has ever faced, I think by some way”.
“You’re into tens of billions, if not hundreds of billions of loss that will be discussed over time.”
He said that payouts to customers would be higher than the $50bn figure for Hurricane Katrina. “The chances of the market making anything other than a notable loss in 2020 are zero.”
On top of paying customer claims, insurers are also likely to have to refund some premiums because of the general downturn in business.
“Lots of insurance policies adjust economically . . . based on turnover or wage roll or utilization,” Mr. Neal said. That will lead to hundreds of millions of pounds of premiums being returned by insurers.
The industry has been criticized for its stance on business interruption claims. Insurers say that standard policies exclude pandemics, but customers and their lawyers say that there are sound reasons to expect a payout.
On Thursday, the Hiscox Action Group, a 200-strong group pursuing claims against the insurer, said that it had appointed law firm Mishcon de Reya to handle its claims, and was in talks with a litigation funder to finance legal action.
Hiscox has consistently said that its small-business policies do not cover pandemics. In a statement on Wednesday, it said that it was willing to work with “the UK insurance industry, its regulators and its customers to seek means of expediting resolution”.
The Action Group said that it could demand additional damages on top of the insurance payouts. Legislation from 2016 allows businesses to claim damages from insurers for late payment.
Lawyers say that there have been no successful claims for late payment damages since the law was introduced, but that it could be used now.
“It is a risk that insurers should be taking into account,” said Richard Mattick, a lawyer at Covington & Burling.
Mr. Neal urged insurers to deal with the business interruption issue: “Let’s get mechanisms in place quickly so that if there is a dispute it doesn’t go for months if not longer.”
He added that insurers needed to come to an agreement with the government about how any second wave of coronavirus cases could be covered. “We’ve got weeks, not months to resolve some of these immediate issues.”
Lloyd’s has set aside £15m to fund research into how pandemics and other big events can be better dealt with in future.