The COVID – 19 pandemic has occupied the attention of every country in the world in the last three months. Initially, the various governments have undervalued the impact that the virus would have had in the population lives. The virus started in China, in the city of Wuhan, and currently, after more than three months, the infection has affected 196 countries.
The measures that the different nations are taking to stop the spread are revealingly painful for the global economy since more and more countries are in lockdown. Indeed, the direct consequence is the immediate stop of consumption of any goods or services not considered essentials, putting many businesses at risk of failure.
To avoid the disruption of the national economies, governments are putting in place extraordinary fiscal and monetary measures. Uk, Usa, EU, Canada and also Latin America administrations have announced packages worth hundreds of billions of dollars, if not trillions, to help workers and businesses to survive the crisis.
The insurance industry plays a key role, both social and economical, since its mission is to help the private and public operators, individuals and companies, to cover their financial losses caused by an adverse event. In the next paragraphs, will be provided insights on how the insurance industry is facing the Coronavirus pandemic.
PANDEMIC AND EPIDEMIC : Put the COVID – 19 in a wider context
A first useful step to understand the problem is contextualizing its characteristics and creating a bigger picture that can help to address the direction of the solution.
Defining the characteristics of a pandemic or epidemic is the first crucial point for a good comprehension of the problem. Also, understanding what happened in the past is very important for making future predictions.
Most of the infectious diseases that humans have experienced in history are generated by zoonotic disease , that is, viruses and parasites transmitted by animals. Indeed, research shows that 60% of all human disease and 75% of all emerging disease are zoonotic. (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3712877/ ). Once that a pathogen becomes zoonotic then the pandemic is likely to occur because of the changing pattern of the interaction between human and animals. Indeed, in recent times a closer relationship between human and animals is emerging, increasing the risks of zoonotic pathogens. Specifically, most human infections have the origins in livestock and epidemics in humans and livestock have a distinct but stochastic pattern. Consequently, from the actuarial point, the risk can be quantified and analysed.
Pandemic and epidemic occurrence at different times in history with different outcomes depending on the severity of the illness and the duration of the disease that they bring to humans. In the most recent times, we have experienced a number of pandemic or epidemic such as Zika, Sars, MERS and Ebola. The costs of the pandemic or epidemic are variable and, as an article of The Actuary shows, can go from a modest $450m to $77bn.
For example, according to the World Bank, the Zika virus had an economic impact of US$3.5bn while the SARS US$54bn. (https://www.worldbank.org/content/dam/Worldbank/document/HDN/Health/WDR14_bp_Pandemic_Risk_Jonas.pdf and https://www.sciencedirect.com/science/article/pii/B9780128123652000123)
Moreover, common sense suggests that the number of deaths is a good predictor of the economic damages. In practice, this may not always be true. Indeed, the damages can also come from the change in habits or loss of animals and plantations that may create problems in the supply chain of an economic sector.
In general, we had more than 400 high-priority human disease outbreaks in the last 12 years, this means that human mankind, considered in its global terms, is constantly under threats from a pandemic or epidemic. The economic damages coming from infection disease will continue to rise since the global economy and activity is more and more interconnected with higher risk of spreading the infections.
The COVID-19, is a virus infection (the same family of SARS and MERS), born in bats, which results in pneumonia and even death, originated in the 2019 from a Wuhan city seafood market. The transmission occurred person-to-person, primarily to health workers and spreading to the entire community.
INSURANCE INDUSTRY: Overview of the Insurance Industry solutions.
The primary consequence for the insurance industry arises under the insurance policies providing coverage for infections, or similar. Thus, the businesses that more likely have a coverage or would need a coverage are :
• Health Care Facilities
• Aged Care Homes
• Hotel. Tourist Resorts and related businesses
• Child Care and related facilities
Clearly, the different characteristics of the coverage vary across jurisdictions and policy wordings.
In order to be consistent with the context, let’s focus on the United Kingdom situation.
According to the ABI, there are different products that can be affected by the COVID-19 pandemic:
• Business Insurance
• Home Insurance
• Travel Insurance
• Wedding Insurance
• Income Protection
• Trade Credit Insurance
• Pensions and Investments