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Pandemic: Potential insurance impacts

Consideration of the impact the next pandemic could have on the insurance industry.

This report will consider the impacts a pandemic might have on the insurance industry. This is not a business continuity report and we mainly focus on scenarios that may lead to underwriting losses and adverse investment returns which drive profitability, rather than operational issues.This is not to understate the importance of such issues. Employees are an insurer’s greatest asset and it is vital for insurers (as with othercompanies) to have robust and regularly tested pandemic preparedness plans; but there are many excellent papers on this subject alreadyavailable.

A pandemic is certain to occur at some point in the future. They have happened regularly in the past. It is clear that life and health assurers will be adversely affected; but it is less clear how general insurers will fair; this report hopes to provoke some debate on this point.

We believe there are scenarios that could lead to loss in a large number of classes of business. These could arise from primary effects such as successful lawsuits leading to claims under liability policies. Claims could also come from secondary impacts to society, such as reductions in the availability of tradesmen in the short term, which lead to further losses. Some potentially affected policies may not have been written with such claims in mind and one possible response from the insurance industry is to clarify coverage intentions sooner rather than later. Contract certainty is to everyone’s advantage.

We hope that insurers will consider the scenarios posed in this report and take action to measure and monitor exposure; consider capital implications and tighten terms and conditions, if necessary.

Date of publication: May 2008