What the Insurance Industry is Doing

The insurance industry is as concerned about a pending influenza pandemic as the rest of us, maybe more so.  In October, 2008, Lloyd's published a paper entitled, "Pandemic: Potential Insurance Impacts."

The impact of SARS taught the insurance industry several lessons.  SARS was not a predicted event, and some estimates suggest it caused economic losses of between $30bn and $150bn.  Besides avian flu, other diseases and events can create similar strains on the health and economic systems as they stand.

It's interesting to see what the concerns are regarding pandemic scenarios and the impact on their industry.  "For a severe pandemic we have seen that a global recession would be a likely result; so many businesses will be struggling, food may be short in some areas if supply chains are affected.  Society will not be operating as it ordinarily does.  We saw in the aftermath of hurricane Katrina the breakdown of law and order, and the looting that followed.  This was a time when the majority of the US was not affected; in a pandemic it is possible that the entire planet will be suffering the effects simultaneously or in quick succession....  For very large scale events, things tend to go wrong at the same time.  A global pandemic potentially affects every industry, every person and every country at the same time."

"Issues of liability are settled in the courts.  However, insurers may be able to prevent unexpected claims by proactive consideration of pandemic scenarios.  Third parties (clients, customers, residents, etc.) rely on others to keep them from harm or personal injury," and as such they expect key industries to have thought through the impact of a pandemic fully and have robust and tested plans in place.  Those that don't plan adequately and perform badly in a pandemic, putting others at risk, may face legal action.

What is especially interesting are the particular scenarios they present for discussion surrounding legal claims and the contingent general economic crisis that would encourage legal action.

• One such example is, at the start of a pandemic wave, the organizers of a pop concert go ahead with a planned event despite other such cancellations.  When questioned by the press they say it is safe to do so.  When later there are claims that people contracted flu at the event a legal case follows and organizers are found to have acted inappropriately.  Will their liability policy be triggered?
• Following pandemic plans several airlines have canceled all flights to avoid conditions of contamination due to the close quarters of air travel.  A few airlines are keeping services going.  Passengers complain that some fellow travelers are showing signs of illness.  Several passengers go on to develop the flu and a subsequent review demonstrates a higher than average proportion of the passengers became infected on those flights.  A class action is taken against the airline.
• A large portion of the workforce being absent during the pandemic will cause safety standards to fall.  This may lead to an increase in general risk levels.  Will all procedures be followed as thoroughly as usual?  The existence of a thorough pandemic plan will impact liability claims.
• As large volumes of people stay at home either because of illness or caring for others, we can expect the volume of traffic to fall; or, will that be offset by the many people wanting to avoid public transport who take their cars.  How will this impact the number of accidents that will still occur, and the number of paramedic staff and response times that are reduced due to pandemic related issues (higher demand, fewer staff).  Results of these conditions will increase the severity of accident outcome and will tend to increase the average claims size.
• In a property damage claim the longer the delay between the event and rectification the larger the claim.  Typically lost roof tiles that are not replaced quickly can let water into a property and turn a small claim into a large one.  Yet the supply of roofers and builders during a pandemic is likely to be lower either due to illness or fear of exposure.  This will raise prices, again increasing the average insurance claim.
• If supply chains fail and food is short, or if a recession causes high unemployment, it is conceivable that crime will rise.  It is not clear whether theft will increase but these conditions of shortages and unemployment will occur during a pandemic and in the recovery period after.  Civil commotion exclusions may apply; but a higher crime incidence may not be covered by these.