Coronavirus ‘a wake up call’ for insurers

With more than 40,000 people infected and the World Health Organisation (WHO) declaring it a public health emergency of global concern, insurers are assessing the potential damage of the coronavirus outbreak.

The impact on the insurance industry may appear limited at first, but as the virus spreads to more Asian countries such as Japan, Malaysia and Singapore, and further afield to the US and UK, sector players are raising concerns.

“This is a wake up call for insurers to further analyse their exposure to epidemics and pandemics through specialist catastrophe models,” Colin Dutkiewicz, head of life at Aon’s Reinsurance Solutions, told Intelligent Insurer.

He added that by reassessing their models re/insurers are able to shape reinsurance strategies to manage exposures and align with local regulatory requirements such as Solvency II in Europe and local risk-based capital regimes in Asia Pacific.

“It is also important to note irregular regional and global epidemics like the coronavirus are anticipated by the re/insurance market. Indeed, modern risk-based capital regulatory regimes now require insurers to specifically hold capital against this sort of event,” said Dutkiewicz.

In addition, insurance policies covering critical illness are reserved for named morbidity perils, meaning for coronavirus, a virus that has been relatively unknown until recent times, insurers exposure to the virus would be low.

In recent press conferences, both French reinsurer SCOR and Hannover Re claimed to have limited exposure to pandemic covers in the Asia region. “In the life sector we issue €9 billion ($9.86 billion) of premiums a year, €1 billion of this is in Asia and €400 million in China. We also have limited mortality exposure,” said Ian Kelly, head of investor relations at SCOR.

Sven Althoff, member of the Executive Board at Hannover Re, noted that on the companies property and casualty side, coverage for non-damage business interruption resulting from infectious disease is mostly excluded.

While re/insurers exposure to the coronavirus seems relatively small, Dr Simon Worrell, global medical director at risk management company Collinson said that the virus’s impact on businesses and the wider economy could be severe. “Businesses have and will continue to be seriously affected by coronavirus. Those doing regular business with China will feel the effects the most but as the virus becomes more prolific, businesses which don’t directly deal with China will start to feel the impact too. Any disruption from an outbreak or suspected outbreak could result in businesses needing to claim on insurance,” said Worrell.

The travel industry was one of the first to feel the impact of the virus with a number of major airlines halting flights to and from China. However, Greg Lawson head of Travel Insurance, at Collinson noted that the impact on outbound leisure travel insurers has not been significant and was not as material as in the days of Ebola, SARS and MERS. “This is mainly due to the travel industry agreeing alternative transport arrangements or refunds such that there are no significant travel costs to claim back. The majority of insurers would not regard holiday or family visits as essential travel and, as such, would not accept customers continuing to travel to China under a travel insurance policy,” he said.

Despite the parallels being drawn both with the Ebola virus and SARs, they have fundamentally different profiles. According to the WHO, Ebola infected 28,616 people with 11,310 deaths across 10 countries. While the coronavirus has already infected 40,651 people but with fewer deaths of 910, at the time of publication. The lower deaths suggest lower exposure to insurers on mortality lines but the virus is progressing at a much faster pace.

“Ebola is predominantly found in less developed countries, where disease prevention isn’t widely understood and difficult to implement. Comparatively, coronavirus began in a society with a stable infrastructure, where disease prevention is widely appreciated and strategies to control transmission have been rapidly instigated,” said Lawson.

While the coronavirus impact is widespread and still developing, its impact on the insurance market has so far been modest. According to Dutkiewicz, many insurers, especially the large UK and large multinational reinsurers, will have significant diversification measures in place to offset their risk through longevity programmes they hold from annuity business. In addition, any potential insurance exposure that could emerge would likely be from blanket policies that cover a range of influenza-like-illnesses.