Avian Influenza-H5N1
Implications for the Insurance Industry
Casualty Actuarial Society Meeting
San Francisco
Al Fine - Willis Risk Solutions
Facts
• Influenza viruses are highly species specific
• Avian influenza is an infectious disease caused by the “A” strain
of the virus
• Since 1959 only 10 documented incidences where an “A” strain
influenza has infected humans
• H5N1 is highly pathogenic virus transmitted by migrating birds to
farm poultry; humans infected tend to work with or ingest sick poultry
• Disease spread via intersecting migratory flyways and international
human and product movement
• A major pandemic is likely when disease mutates to allow efficient
transmission between humans-at least one case has been identified
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History
• 1997 Hong Kong Outbreak –first known cases of bird to human
transmission; 2003-2005 period defined as the “Second Wave”
• According to WHO, in 2006 H5N1has killed a person every four
days- double the 2005 rate
• As of October 18, 2006:
• 256 Diagnosed Cases
• 151 Deaths
• 50+ Cases in Indonesia in 2006
• 90+Cases in Viet Nam
• Cases in 10 countries located in Southeast Asia,
Central Asia, Europe, and the Middle East
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Scenarios
Congressional Budget Office Assessment
• Severe: US Exposure- 90 Million Cases/2 Million Deaths
• Mild: US Exposure- 75 Million Cases/100K Deaths
Fitch
• 400 K Deaths Projected in Europe
• 209 K Deaths Projected in US
Y2K or 9/11?
• Potentially 25% of the Workforce Infected on Global Basis
• Broken Supply Chains/Border Closings
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Risk Factors
• Population density and demographic of infected population
• Speed of Infection and ability to quarantine
• Availability of cure and logistical, political and financial impediments
affecting distribution
• Duration of disease and lingering economic and social effects of
countermeasures
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Insurance Exposures
Employee Benefits
• Health and Welfare
• Life
Property/Business Interruption/Political Risk
• Contamination
• Civil Authority
• Supply Chain
General Liability
• Premises Liability
• Strict Liability in Tort
• Independent Contractors
Workers’ Compensation/Employers’ Liability
• Sole Remedy?
• Number of Occurrences
• Foreign Voluntary Compensation
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Implications for Insurers and Reinsurers
• Exclusionary Language to Remove Ambiguity
• Coverage Definition and Rationing
• Arguments for Coverage Based On Public Policy Concerns
• Emergence of Potential New Case Law
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Possible Financial Implications
• Loss impact uncertain
• WC/GL flu-related claims up
• WC/GL non-flu-related claims down as businesses
shrink or close
• Economy Suffers
• Revenues & Payroll down  Premiums down
• Stocks & Bonds lower  Assets down
 Less money to pay claims
Predicted 2% - 5% hit to assets on $4 trillion in
assets
= $80 billion - $200 billion or 30% to 80% of surplus
• Investment Downgrades for Insurers- combination of
underwriting losses and portfolio losses
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New Opportunities?
• Contingent Business Interruption
• Example:
• ABC Co. performs accounting services for private
schools on an outsource basis
• Avian flu  Excessive Absenteeism (Teachers &
Students)  School Closures  Reduced Income to
ABC Co.  Need for Contingent Business Interruption
coverage
• Could possibly be done w/parametric trigger (e.g. pay
$100,000 if U.S. incidences exceed 50,000) to make
loss quantification easier
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H5N1 Data Tracker
• World Health Organization:
http://www.who.int/csr/disease/avian_influenza/en/index.html
• UN Food and Agricultural Organization:
http://www.fao.org/ag/againfo/subjects/en/health/diseasescards/special_avian.html
• US Center for Disease Control:
http://www.cdc.gov/flu/avian
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