Bird flu more likely to affect life insurers, not P&C insurers

Fitch ratings service believes that the life insurance sector will take a much bigger hit than the non-life sector in the event of a global bird flu pandemic.
A recent Fitch report, posted online, notes the P&C sector would more likely feel the effects of the flu in lost investments and business interruption coverage. The report notes a pandemic is not likely at this point, as human-to-human transmission of the bird flu has not been found thus far.
“Fitch believes that, in as far as it affects the insurance sector, the greatest impact of a bird flu pandemic (if it materializes) is likely to be on life insurers and their reinsurers,” the Fitch report says. “Although impossible to predict with accuracy, for the purposes of this analysis, Fitch estimates using various expert opinions 400,000 deaths could occur in Europe and 209,000 in the United States.
“Under these assumptions, Fitch believes the effect from the increase in claims could amount to as much as 20 billion in Europe and US$18 billion in the United States.”
However, Fitch adds, “mainstream non-life insurance policies do not tend to offer coverage for flu pandemics.”
As a result, for non-life insurers, Fitch notes, the greatest economic effect of a flu pandemic is likely to be the interruption of business due to employees requiring time off work either because they are ill themselves or because they need to care for a sick family member. UK government figures show that approximately 25% of people may be infected, and previously fit and healthy workers are likely to need between four and eight days to recover from the disease.
“However, business interruption due to absent workers is not likely to be covered by business interruption coverage, as this type of policy relates more to physical damage or restricted access to buildings,” Fitch observes. “Property and marine policies generally exclude damage due to the spread of infectious disease. Losses to insurers arising from business interruption coverage are thus likely to be limited.”
However, life insurers, non-life insurers and reinsurers would all be affected by any falls in the investment market that could accompany a flu outbreak, the Fitch report says. “Although this could be significant, if the outbreak is relatively short lived, the overall effect is likely to be temporary. Consequently, Fitch does not envisage a significant threat of widespread rating downgrades to either the life, non-life or reinsurance sector at present.”
Downgrades, the report continues, would be most likely if the virus mutates to allow human-to-human transmission and leads to a considerable increase in mortality claims or investment market losses.