The coronavirus crisis continues to generate data that can be valuable for understanding and decision making. Below are just a few resources that may be of interest to insurers and the people and businesses they serve.
The Verisk COVID-19 Projection Tool has been made available to enhanceunderstanding of the potential number of worldwide COVID-19 infections and deaths. It provides an interactive dashboard that leverages the AIR Pandemic Model.
Small and medium-size businesses account for roughly 44% of the U.S. economy and provide employment to about 59 million people. McKinsey is tracking their sentiment to gauge how their views on economic activity, employment, and financial behavior—as well as their expectations about financial institutions and public authorities—change as a result of ongoing public and private interventions.
The Insurance Information Institute invited its members to a webinar titled “Covid-19’s Impact on Health, the Economy and Growth” on March 5 at 11:00 a.m. EST presented by Triple-I Vice President and Senior Economist Michel Léonard, PhD, CBE.
Dr. Lèonard will discuss the following key points:
• Economic impact likely to continue into Q3/Q4 2020 and 2021 • Could reduce global growth by as much as 1 percent and delay recovery by up to 12 months • Fiscal and monetary policy, rates cuts, unlikely to be effective • Insurance industry to see higher claims, reduced premium growth
He will also preview the Global Macro and Industry Outlook report before it is made available to the public.
To find out more about the benefits of Triple-I membership click here.
COVID-19, the new coronavirus, has killed more than three
times as many people as the 2003 SARS epidemic.
The World Health Organization (WHO) reported that, as of 10
a.m. Central European Time (CET) on March 1, there were 87,137 confirmed
COVID-19 cases and 2,977 of the infected people had died. From November 2002
through July 2003, according to the U.S. Centers for Disease Control and
Prevention (CDC), 8,098 people worldwide became sick with severe acute
respiratory syndrome (SARS) and 774 died.
More people are believed to have been infected with COVID-19
than official statistics show. This is because confirmed infections are based
on positive tests for the virus, and some countries—including the United
States—have been doing very little testing. Further, the estimated 2 percent
death rate attributed to the disease is based on this unreliable infection
Instead of SARS, some are now comparing COVID-19 with the Ebola pandemic of
2014 to 2016. Ebola is believed to have
killed about 50 percent of those it infected, but that outbreak was contained
before it reached the same number of infections as COVID-19.
So, is there a useful historic comparison
to be made with COVID-19? I would argue that there is: the “Spanish Flu” of
There is no vaccine for COVID-19, and
experts suggest it could take a year or
more to develop, test, manufacture, and distribute a vaccine. This suggests
there are few medical strategies for dealing with the current outbreak. It’s as
though we’re medically in the world of 100 years ago.
The 1918 flu virus had an estimated
mortality rate of about 2 percent and was very infectious. It is estimated that
as many as one-third of the entire world population was infected at some time,
so even a 2 percent mortality rate caused millions of deaths.
This raises a scary thought about how
the COVID-19 pandemic might play out: the Spanish Flu swept around the globe in
three phases. The first was in the
Spring of 1918 and, although it infected widely, had a relatively low mortality
rate. The second phase occurred in the Fall of 1918. This phase saw faster
infection spread and was much more deadly. The third phase was in February and
March of 1919 and was less infectious and less deadly than either of the two
World War I – with large concentrations
of soldiers in barracks and trenches and truck convoys moving across Europe –
may have contributed to this infectious arc. But the virus killed more people
than the war on every continent except Europe.
What would a COVID-19 pandemic mean
for insurers? The main impact would likely be on health insurers, since the
number of people seeking hospitalization would likely spike claims far beyond
anything their rate structures have anticipated. In 1918 hospitals were so overwhelmed
that auditoriums, indoor sports arenas, and similar spaces were set up to house
patients. Scarcity rates would apply; for example, the number of respirators
available currently is far short of what would be needed, and prices for new
supply would likely surge.
As I’ve written previously, for life insurers the effect of a severe pandemic would depend on
which segments of the population are likely to die. In 1918, in addition to the
very old, that virus struck unusually strongly at people in the prime working
years, triggering benefits from both individual and group life insurance. The
sudden impact of such unpredicted losses would affect all life insurers,
particularly the weaker ones.
In the property and casualty sector, the
line most directly affected is likely to be workers compensation, particularly
for health care workers and others exposed to the virus as a result of their
work—such as police, fire, and EMT. Another possible line affected is various
liability lines, involving claims from people who became sick from
manufacturing, dispensing, or receiving a vaccine or other treatments. In
recent years, Congress passed laws blocking such liability claims, but it’s not
clear that it will do so again today.
Beyond the direct effects to
insurance, there are growing forecasts that the global economy, and especially
particular sectors, could see dramatic cutbacks. Businesses and other
organizations that involve people gathering in crowds are already seeing such
effects, and insurance premiums that reflect these downturns are likely to
follow. However, claims are also likely to turn down (e.g., fewer auto
accidents), so the effect on those lines might actually be neutral or positive.
Learn from history
Today people and goods move around the
world with unprecedented speed. Urban environments and the transit systems that
serve them are as packed with people as any military convoy or trench network.
If COVID-19 follows a similar track to
that of the Spanish Flu, the current outbreak would turn out to have been a
mild phase. If this scenario is correct, the first phase would taper off in a
month or two, followed by several months in which the virus would appear to
have ended its threat.
We should continue developing vaccines
and other preventive/mitigating measures during this lull to better prepare for
the more virulent phase that might manifest in the second half of 2020. Failure
to do so would mean we’ve learned nothing from the worst global pandemic in the
last 100 years.
You’re more likely to die from being attacked by a dog than in an airline accident (see chart).
And yet, according to a recent Allianz Global Corporate & Specialty (AGCS) report, the aviation sector’s insurance claims continue to grow in number and size.
The report – Aviation Risk 2020 – says 2017 was the first in at least 60 years of aviation in which there were no fatalities on a commercial airline. The year 2018, in which 15 fatal accidents occurred, ranks as the third safest year ever.
Of more than 29,000 recorded deaths between 1959 and 2017, the report says, fatalities between 2008 and 2017 accounted for less than 8 percent – despite the vast increase in the number of people and planes in the air since 1959.
So, what gives?
Safety is expensive
Some of the reasons for the increased claims are good ones: Safer aircraft cost more to repair and replace when there are problems.
The report analyzed 50,000 aviation claims from 2013 to 2018, worth $16.3 billion, and found “collision/crash incidents” accounted for 57 percent, or $9.3 billion. Now, this may sound bad, but the category includes things like hard landings, bird strikes, and “runway incidents.”
The AGCS analysis showed 470 runway incidents during the five-year period accounted for $883 million of damages.
Engine costs more than the plane
Today’s aircraft contain far more sophisticated electronics and materials than those flying in the 1960s. When they bump into each other or come down too hard, they cost more to repair.
“We recently handled a claim where a rental engine was required while the aircraft’s engine was repaired,” said Dave Watkins, regional head of general aviation, North America, at AGCS. “The value of the rental engine was more than the entire aircraft.”
When entire fleets have to be grounded – the report cites the 2013 grounding of the Boeing Dreamliner for lithium-ion battery problems and the more recent fatal crashes involving the Boeing 737 Max – costs can really soar. Boeing reportedly has set aside about $5 billion to cover costs related to the global grounding of the 737 Max.
Even after a fix is found, the task of retrofitting a fleet takes considerable time – and, in the aviation industry, time truly is money.
Liability awards take off
Compounding the claims associated with the costs of safer flight, the report says, liability awards have risen dramatically.
“With fewer major airline losses,” Watkins said, “attorneys are fighting over a much smaller pool and are putting more resources into fewer claims, pushing more aggressively for higher awards.”
Today’s aircraft carry hundreds of passengers at a time. With liability awards per passenger in the millions, a major aviation loss could easily result in a liability loss of $1 billion or more.
There is no denying it: these are not good developments. And these and other media note that the rate of death by suicide rose by 33.3 percent from 1999 through 2017. (Interestingly, the media generally doesn’t mention the fact that the rate of death by accident over that same period rose by 39.9 percent. Most of the accidental deaths are car-related.)
But there is good news in these reports. You just have to read them to find it. For example, life expectancy from age 65 (not from birth—the Wall Street Journal base) actually rose from 2016 to 2017. In 2017 it was 19.5 years, up 0.1 year from 2016. So on average, of a group of people who make it to age 65, half will live to 84.5 or longer (up from 84.4 or longer in 2016).
Also, in contrast to the increase in the rate of death by suicide, death by stroke was down by 39 percent from 1999 through 2017. Death from heart disease was down by 38.1 percent over that span; death by cancer dropped by 24.1 percent, and death by chronic respiratory disease dropped by 9.9 percent. Even death rates by suicide, which rose for most age groups, actually dropped for people age 75 and over (in 2017 vs. the rate in 1999).
I came across this from Swiss Re around 2 a.m., which helps explain why it caught my (sleepy) eye:
Consider these two facts: Firstly, two out of three man-made losses worldwide are due to human failure. Based on Swiss Re’s sigma research, this would mean that people trigger a loss volume of around USD 3 billion per year.
Secondly, life insurance generated premiums of USD 2.6 trillion in 2017. These two facts are linked because tired people make more errors and insomniacs are at a greater risk of dying earlier than would otherwise be the case.
That’s right – the insurance angle on sleep.
The lack of sleep is associated with increased rates of heart attacks, strokes, obesity and other diseases. Sleeping less can also contribute to the development of Alzheimer’s. And recent research found that chronic sleep restriction increases risk seeking behaviour.
If these trends change the loss patterns in property and casualty or mortality rates, this could have a multi-billion dollar impact on the insurance industry in the long run.
The lack of sleep has caused some high profile accidents, the most notable in my world being a New Jersey Transit train that in 2016 crashed into Hoboken terminal because the engineer, suffering from sleep apnea, zoned out at a crucial moment. One woman died, dozens were injured.
Swiss Re posits that society, ever accelerating, robs us of ever more sleep. The less we sleep, the woozier we become. And the more errors we make. (Our bodies wear out faster too, becoming susceptible to the maladies Swiss Re mentions above.)
A good dose of resilience helps here. New York area railroads are installing (by federal mandate) positive train control systems, which automatically stop trains in any sort of peril, including that of a tired engineer. The illustration above describes how the system works.
As for my own struggles – an e-book of white text on black background, and perhaps a cup of chamomile tea.
The report lays out 12 recommendations to ensure the adequate financing of the capabilities and infrastructure required to prevent, identify, contain, and respond to infectious disease outbreaks.
Many countries chronically underinvest in critical public health functions like disease surveillance, diagnostic laboratories, and emergency operations centers, which enable the early identification and containment of outbreaks, according to the IWG.
It should come as no surprise that in a 2013 global survey, insurance industry executives said a global pandemic was their biggest worry, Dr Kim added.
The Financial Times blog The World points to World Bank estimates that a pandemic could kill tens of millions and wipe out between 5 to 10 percent of GDP of the global economy,
Meanwhile, South Korea is experiencing an outbreak of MERS second in size only to that in Saudi Arabia, where it originated in 2012, with 10 dead and 122 confirmed cases so far. Some 3,000 people are reported to have been quarantined to-date.
A Wall Street JournalReal Time Economics blog post points to the potential economic impact of MERS, noting that South Korea’s $30 billion tourism industry would bear the brunt. Analysts predict the outbreak could knock off anywhere from 0.1 to 0.8 percentage points from South Korea’s annual GDP growth.
Back to that 2013 insurance survey conducted by Towers Watson. Over 30,000 votes were cast and industry execs ranked global pandemic as their most important extreme risk in the long term.
I.I.I. has facts and statistics on mortality risk here.
This is one of the highest death tolls on record for heat-related casualties, Aon notes.
The states of Andhra Pradesh, Telangana, and Odisha (Orissa) were worst affected by temperatures that reached 48.0ËšC (118ËšF) in several areas. Temperatures were so hot that roads literally melted in some areas.
Closer to home the ongoing severe drought conditions across much of the Western United States, with a particular emphasis on California, continue to exact an economic toll.
Aon cites a study conducted by the UC Davis Center for Watershed Sciences on behalf of the California state government that concluded that total 2015 statewide economic losses from the drought will top $2.7 billion.
Including damage from neighboring states, the overall total loss will rise to at least $3 billion.
Heat waves and drought can cause losses in many lines of insurance, according to Munich Re. Many losses are unseen, and the result of secondary events, making it difficult to assess the extent of losses involved.
For example, losses to the agriculture industry can run into the billions of dollars in drought years as harvest failures lead to multi-peril crop insurance claims and livestock losses may result from shortage of feed and heat-related stress. Long dry periods also create ideal conditions for promoting the outbreak and spread of wildfires.
In 2011 Texas suffered a severe drought and overall and insured wildfire losses in that state were also the highest ever recorded, Munich Re explains.
Heat waves have also been linked to an increased risk of mortality and heat-related stress with the potential to impact health and life insurance.
I.I.I. provides facts and statistics on droughts and heat waves here and a useful backgrounder on crop insurance here.
On Friday (January 30, 2015), the California Department of Public Health released figures showing there are now 91 confirmed cases in the state. Of those, 58 infections have been linked to visits to Disneyland or contact with a sick person who went there.
At least six other U.S. states — Utah, Washington, Colorado, Oregon, Nebraska and Arizona–as well as Mexico have also recorded measles cases connected to Disneyland, according to this AP report.
What about last year?
The U.S. experienced a record number of measles cases during 2014, with 644 cases from 27 states reported. Many of the cases in the U.S. in 2014 were associated with cases brought in from the Philippines, which experienced a large measles outbreak, according to the CDC.
Measles, which can be prevented by vaccine, is one of the most contagious of all infectious diseases. The virus is transmitted by direct contact with infectious droplets or by airborne spread when an infected person breathes, coughs, or sneezes.
Approximately 9 out of 10 susceptible persons with close contact to a measles patient will develop measles, the CDC reports.
This is an important point. A study published by Risk Management Solutions (RMS) last year compared the low transmissibility of Ebola (Ebola can only be transmitted through direct contact with bodily fluids), with other infectious diseases such as measles.
RMS noted that each person infected with measles can generate on average more than 10 additional cases in an unvaccinated environment.
What about mortality risk?
Measles is one of the leading causes of death among young children, the World Health Organization (WHO) says. In 2013, there were 145,700 measles deaths globally–about 400 deaths every day or 16 deaths every hour.
One or two out of every 1,000 children who become infected with measles will die from respiratory and neurologic complications, according to the CDC.
One dose of the Measles, Mumps, Rubella (MMR) vaccine is approximately 93 percent effective at preventing measles, CDC notes, while two doses are 97 percent effective. Measles vaccination resulted in a 75 percent drop in measles deaths between 2000 and 2013 worldwide, WHO reports.
A CDC-issued health advisory here provides guidance to healthcare providers nationwide on the multi-state measles outbreak.