Bird Flu A threat to Insurance? Henk van Broekhoven

Preface On request of EC Groupe Consultatif started a task force to analyse the possible impact on insurance because of the Bird Flu Actuaries involved: –Anni Hellman (EC) –Henk van Broekhoven –Erik Alm –Tapani Tuominen –+ experts (other disciplines) from EC

Pandemic A Pandemic arises when a disease that affects at least 25% of the globe causes high morbidity, excess mortality and social and economic disruption Pandemics cause a sudden explosion of illness putting heath services under strain Pandemics spread very rapidly around the world

Pandemic Three pandemics in the twentieth century: –1918 Spanish Flu By far the most deathly pandemic in the last 400 years (= observation period) 99% of the deaths were younger than 65 (!) Worldwide million deaths

Pandemic Three pandemics in the twentieth century: –1957 Asian Flu Global deaths 2 million (USA 70,000 excess) 90% of the deaths were older than 65 Looked more like a normal seasonal flu, but with more sick people (>25%) Started in China Febr. 1957, reached Hong Kong in April and the rest of the world in 6 months

Pandemic Three pandemics in the twentieth century: –1968 Hong Kong Flu Less deaths than the Asian Flu 1957 (USA 36,000) Looked similar to the 1957 flu

Spanish Flu 1918 Why was this pandemic so deathly? –1918 end of first World War –Tuberculosis epidemic in same period People died within 8 hours after detecting condition –In a normal flu and also in 1957 and 1968 extra deaths occur because of complications like pneumonia

A new Pandemic? Experts: it WILL happen, only question when (it is assumed that chance for a new pandemic in the next ten years is above 50%) Will H5N1 cause a new pandemic? –Chances are low (article nature) Still new viruses can cause a pandemic

Would it look like the Spanish Flu? Spanish Flu was very extreme Unlikely that this happens again nowadays –Huge medical development since 1918 –Better prepared –People are in better condition –No TB epidemic and no WW 1 situations – Probability similar scenario << 1:400

How will pandemic look like? Scientists simply don’t know History shows that a pandemic comes in waves with a couple of months in between –Second wave worse than first one –Gives some time to develop a cure

Possible impact depends on.. Can new virus easily infect humans How easy is the transfer human – human Power of making people sick Incubation period How fast can a cure be developed after virus is discovered

Possible deaths scenarios WHO : between 2 million and 7.4 million globally RIVM, extreme : 40,000 in the Netherlands on 16,000,000 people (= translated Spanish Flu) RIVM, more real : 0 – 10,000 in NL

At what ages? Will the extra mortality be age independent, or appear more likely at higher ages?

Spanish Flu in NL

Spread of pandemic deaths over the ages/gender Suppose in extreme RIVM scenario deaths are spread age/gender independent That will lead to the following overview:

RIVM extreme scenario Spread deaths independent of age Age GroupPandemic death Normal death Extra mortality ,2012,362517% ,7814,631276% ,60920,50647% ,84871,7367% > ,8412% Total40,000135,07530% ,39025,13789%

RIVM extreme scenario Whole population in case of age independency shows an extra mortality of 0.25% (to be added up to the qx’s) Supposing insured population in better health, so better protected: 60% of 0.25% gives an extra mortality of 0.15% Calamity solvency capital can be calculated in this way!

RIVM other scenarios Suppose 10,000 death in NL age independent: extra mortality for insured population: % Suppose 10,000 deaths 90% at higher ages (>65): x>65 extra 0.25% extra qx x<65 extra 0.005% extra qx

Other risks A pandemic has also impact on other risk types: –Morbidity –P&C (Animal insurance) –Financial –Operational

Financial Predicting the impact of Avian flu on global economy is impossible A re-run of the Spanish flu could strip tens off GDP –In extreme cases goods more useful than cash Also temporary impact possible in less severe pandemics, simply because of “fear” following the “hype”

Operational risk More than 25% of employees are at home –Partly ill –Partly surging –Partly fear… Precautions –Stocking medicines for employees? –Possibility working outside office (at home)

Morbidity risk Products –Medical insurance –Hospitalisation –Sick leave insurance –Disability (?)

Medical insurance Non severe scenario –High number of extra claims –Claims low (treatment costs are low) Severe scenario –unclear

Hospitalisation Non severe scenario –Some extra claims because of complications Severe scenario –Unclear –Limited number of hospital beds –Temporary hospitals –Costs shared by governments and insurance companies (?)

Sick leave insurance Non severe 15-25% extra claims (?) Severe: >25% what to do with people who are healthy but still stay at home (fear)?

Disability Perhaps but unclear some impact in severe situation

Severe scenario For health care we think that the first goal of people and governments will be that the virus is beaten ASAP –Independent on costs –Independent of insurance

Conclusion for insurance It is impossible to set up a “best estimate” scenario, only “what if” scenarios Impact unclear for some risk types A solvency margin for calamity could be: 0.15% x NAR (better than something like doubling one-year claims) Be careful with diversification within calamity -> correlation = 1

Conclusion Prof. Coutinho: Be careful in communication –Try to prevent panic –In can last another 5-10 years before we have a pandemic –Publications on safety and heath are selling good: A pandemic creates sensation in publications