Reinsurers might have a hard time protecting the U.S. life insurance industry against a “bird flu” pandemic comparable to the “Spanish influenza” pandemic that swept over the world in 1918.
A major bird flu pandemic could lead to about $133 billion in group and individual life claims in the United States, and even a moderate pandemic, comparable to the 1968 “Hong Kong flu” epidemic, could generate about $31 billion in U.S. group and individual life claims, according to Steven Weisbart, an economist at the Insurance Information Institute, New York.
Weisbart has included those predictions in a paper published by the III.
In a typical year, 36,000 U.S. residents, or 0.012% of the nation’s residents, die from the flu. In 2004, U.S. life insurers paid about $32 billion in individual life claims and $19 billion in group life claims for deaths from all causes, Weisbart writes.
In 1918, the Spanish influenza killed about 675,000, or about 0.7%, of the 103 million people then living in the United States. The deaths led to about $110 million in life insurance claims, or about 0.15% of the 1918 U.S. gross domestic product of $76 billion, according to the Economic History Services Web site.
During a normal flu outbreak, only about 10% of the patients who die are between the ages of 16 and 40, but, during the 1918 pandemic, about half of the victims were in that age range, Weisbart writes.
Weisbart cites studies indicating that the 1918 flu was particularly deadly to working-age pregnant women, with a flu death rate of about 23% to 71% for pregnant women hospitalized with the Spanish flu.
In 1957, the 1957 Asian flu pandemic led to about 60,000 excess deaths in a U.S. population of 172 million, and in 1968, the Hong Kong flu led to 30,000 excess flu deaths in a U.S. population of about 201 million with a GDP of $911 billion in 2002 dollars
Now actuaries are wondering about the H5N1 Avian Influenza A strain, which had caused 148 confirmed cases by Jan. 14 and killed 79 of the confirmed victims, according to the World Health Organization.
So far, many of the victims of the H5N1 flu have been children, and scientists say they do not believe the current strain passes easily from one human to another. Most of the people infected appear to have contracted the virus directly from chickens or other birds.
Some scientists have speculated that only a small percentage of patients with H5N1 may seek medical treatment for the flu, and that the strain may not be as deadly as the WHO figures suggest.
Medical technology has advanced considerably since 1918, and public health strategies also have improved, Weisbart writes.
But Weisbart notes that there is no guarantee that technology would protect the United States against a new Asian flu.
One challenge is finances.
“The U.S. government’s recently issued pandemic response plan calls for states and localities to be the main providers of health and other services and to pay for 75% of the cost,” Weisbart writes. “Many states will be hard pressed to come up with the money or the services needed.”
If the new Asian flu evolves to become as deadly to working-age, well-insured adults as the 1918 Spanish flu, then it could deliver a huge blow to the U.S. life insurance industry, Weisbart writes.
The U.S. Department of Health and Human Services has estimated that either a moderate or severe flu pandemic could infect about 90 million U.S. residents. About 209,000 of those residents might die during a moderate pandemic, and 1.9 million might die during a severe epidemic, according to HHS.
A moderate flu pandemic could cost about $11 billion in group life claims and $20 billion in individual life claims, for a total of about $31 life claims, and a severe pandemic could cause $54 billion in group life claims and $79 billion in individual life claims, for a total of about $133 billion life claims, Weisbart estimates.
“Under these assumptions, virtually every company’s group life claims would surpass premiums, dissolve any policyholder dividends and possibly force them to use some corporate surplus,” Weisbart writes. “Although many factors would affect the outcome, we estimate that perhaps 5 to 8 of the 30 leading group life insurance writers might struggle to pay their group life claims, particularly if other lines of business, as well as their asset values, are also under stress.”
On the individual life side, a severe pandemic would be especially hard on life insurers that have sold large amounts of term life coverage and other life products backed by modest reserves, Weisbart writes.
A flu pandemic could help insurers in some ways, by, for example, cutting lapse rates and killing some customers who have been collecting annuity income. But annuity death benefit guarantees and other features could counteract some of the effects of a decrease in the number of annuitants, Weisbart writes.
Weisbart says assessing the value of reinsurance to life insurers coping with a flu pandemic is also difficult.
“Virtually all U.S. life reinsurance is provided by 10 companies, all of which also have large books of business in other countries, which might also be affected by a global influenza pandemic,” Weisbart writes. “Although these companies are financially strong, there is no comparable previous experience against which to measure what might happen…. Since the life reinsurance market is highly concentrated and all companies with reinsurance would be seeking reimbursements at the same time, questions about some life reinsurers’ ability to pay will arise.”
A copy of the III influenza report is on the Web at Document Link