Insurers Should Expect Next Influenza Pandemic to be Severe, Experts Say

Risk experts are warning insurance companies that they may be underestimating their risk if they assume that a new influenza pandemic would be no worse than the 1918 influenza pandemic.

While some published studies have already illustrated the effects of various pandemic scenarios, most commonly a repeat of the 1918 influenza pandemic that had a mortality level of 0.67 percent in the U.S. and even more severe effects in other countries, RMS says its analysis of the virology and epidemiological science shows that more severe pandemics are possible. There is a one in five chance of a pandemic that is more severe than that experienced in 1918.

H5N1, the virus that recently caused avian flu in Asia, has viral characteristics that will increase the likelihood of a virulent pandemic if it provides genetic material for human-to-human influenza transmission, according to RMS.

The RMS probabilistic model assesses the risk of influenza pandemics across multiple countries. The RMS Influenza Pandemic Risk Model is intended to help insurers assess the losses they will experience from pandemics with all of the different permutations of potential characteristics and outcomes. It incorporates over 1800 pandemic influenza scenarios that take into account such factors as likelihood of the pandemic occurring, infectiousness and lethality of the pandemic, demographic impact, country of outbreak, vaccine production, and national countermeasures.

RMS believes that many companies may be underestimating their risk if they assume that the 1918 pandemic is the worst-case scenario.

“Pandemic influenza could potentially deal insurers a triple whammy, simultaneously causing unprecedented life and health claims losses, investment portfolio downturns at a time when insurers most need liquidity, and reduced staff and management productivity through the spreading of sickness among company personnel,” stated Dr. Andrew Coburn, RMS project lead on influenza pandemic risk modeling.

“Moreover, influenza pandemics can last two to three years, making it essential for insurers to put in place a multi-year risk management strategy that considers the reinsurance crunch that will likely occur in the event of a pandemic”

Life and health insurance portfolios are very different than property portfolios. The RMS model enables insurers to incorporate detailed analysis of their own specific portfolio, allowing the characteristics of individual company’s policyholders to play an important role in the risk assessment process.

Another potential application of the model involves securitizations of influenza pandemic risk for companies looking to find capacity in the capital markets.

The new model will be presented at an RMS Seminar on the Management of Influenza Pandemic Risk being held June 1, 2006 in New York City. The seminar will feature a guest presentation, “Understanding the Threat of Pandemic Influenza,” by Professor Marc Lipsitch of the Department of Epidemiology, Harvard School of Public Health. Advance registration and approval by RMS is required. Details and registration information are available at http://www.rms.com/.

Source: RMS