Between 1918 and 1919, the Spanish Flu killed more than 500,000 people in the United States and 50 million people worldwide. Schools closed, companies went out of business and healthcare professionals fought to keep up with one of the most frightening illnesses of the 20th century.

With the emergence and continued spread of the avian H5N1 virus, the medical community believes there is yet another human pandemic on the horizon. According to PandemicFlu.gov, managed by the U.S. Department of Health and Human Services, the reason for the concern is that this flu strain–though it continues to evolve like all influenza viruses–is highly infectious, is spread by migratory birds, and can be transmitted, in some limited circumstances, to humans. Everyone may be at risk at any time of the year. In fact, during the 1918 pandemic, young, previously healthy adults were more likely to die than the very old, very young and the chronically ill.

Should a pandemic occur, the potential impact on the health and life insurance industries could be significant. In addition, because everyone is vulnerable, the disability insurance industry should consider pandemic planning and address how increased claims would be managed, as the probability is high that those fortunate enough to have disability insurance coverage would have to miss work and might file claims.

To exacerbate the situation, short-term disability claims could lead to higher long-term disability incidence, in part because medical professionals, also affected by the disease, would be unable to keep recovery programs in place. With increased numbers of claims to manage, disability insurance carriers would be faced with the need to adjust their claims management practices to adjudicate the various and unique scenarios that may arise, and continue operations under these circumstances.

An October 2006 study led by the Harvard School of Public Health found that 1 in 4 adults said they could not afford to miss work for 1 week. More than 50% “would face serious financial problems if they missed a month of work.” Therefore, payment of disability claims will be critical, and individuals will count on disability carriers to pay claims on a timely basis.

Disability insurance carriers–though they can hope for the best–should plan for a scenario that goes beyond standard disaster recovery or business continuity plans. The impact of pandemic-related illness on their own staff could be severe while claims processing volume may be at its highest.

Based on data extrapolated from two previous pandemic flu outbreaks–one moderate and one severe–the Department of Health and Human Services has projected the number of individuals who may be affected by a future pandemic.

When operating in the event of a pandemic, disability insurance carriers may want to consider the following:

Determining eligibility for coverage, and whether an insured satisfied the “actively at work” or “active work” policy provision, may present significant challenges for claims management during a pandemic.

Potential scenarios and solutions are as follows:

o Diagnosed with the pandemic flu. Claims will likely be managed according to normal protocol.

o Caring for sick family members. Since this person is not sick, he would not have a compensable disability claim. The Family Medical Leave Act may be relaxed in this situation to make it easier for employees to stay home and care for the sick.

o Quarantined (asymptomatic). If an employee is isolated without flu symptoms and can work from home but loses his income; this scenario may generate a claim for disability benefits.

o Quarantined (isolated with flu symptoms). Employees have flu symptoms and are unable to leave their home to seek medical treatment. Disability carriers typically require certification of disability from a physician; this requirement may need to be relaxed under these circumstances.

o Commuting and transportation issues. Any total or partial shutdowns of mass transit could keep an individual from reporting to work. This situation will likely be handled under an employer’s leave of absence policy and is not a reason for filing a disability claim.

o Fear of disability. This type of phobia may require investigation to determine if it qualifies as a mental illness that would be a covered disability.

The standard disability policy has a 30-day grace period for payment of premiums. Disability carriers are liable to pay claims incurred during this grace period. Likewise, policyholders are expected to continue to pay premiums. During Hurricanes Katrina and Rita, some of the affected states ordered insurers to extend the grace period and prohibited insurers from terminating policies for nonpayment of premium for a certain period of time. Similar measures could be adopted in response to a pandemic. Therefore, carriers may need to prepare for longer premium extensions.

As previously mentioned, the health care system will be overwhelmed during the most serious stages of a pandemic. Patients may find it nearly impossible to see their physicians, never mind have that physician complete their claims form. Additionally, there will be situations in which claimants have diagnosed conditions but are either not receiving treatment, or are receiving it from a nurse instead of a doctor. Carriers may need to be more lenient regarding initial and ongoing proof of disability until the healthcare system returns to more normal conditions.

Depending on the severity of the pandemic, the number of short-term claims will be considerable and may compromise a carrier’s ability to provide timely claims risk management. Managing pandemic flu claims will be complex and challenging, so to ensure that timely and accurate risk management occurs with all claims, it may be prudent to consider broadening “pay and close” protocols (which limit the investigation an insurer conducts before paying claims on which a closed period of liability exists).

Reduction in claims staff and the inability to obtain needed records because of reduced or reassigned staff at medical offices may call for claims paid under “reservation of rights” to be expanded. These payments would not be deemed an admission of liability once resources are regained to properly investigate a claim. The disability insurance carrier reserves its right to collect monies paid if at the end of the final claim determination it decides that benefits are not payable.

Employees may need to telecommute during a pandemic. This may lead to questions of whether these employees are considered actively at work because their home might not be their “typical place of business.” It may also present problems with verifying how many hours a non-exempt employee actually works from home, but there may be no other options than to take the claimant’s word.

Just as companies prepared for Y2K, disability carriers should take the steps necessary to ensure their operations continue and that payments are made to those who will so greatly need them. Unlike Y2K, a pandemic would result in loss of life and would change the way every business and every individual operates in this country and around the world. Disability carriers have a responsibility to assess their plans both on the basic operational level and in the event a pandemic occurs.