Credit ratings agency AM Best has found that insurers are well prepared to deal with any direct impact from the recent outbreaks of Ebola and Andean hantavirus, in part due to “lessons learned” from the COVID-19 pandemic on underwriting gaps and system vulnerabilities.
AM Best’s commentary states that “insurers are better prepared for rare disease outbreaks after learning from COVID-19” and that the recent outbreak has brought renewed attention to the impact of the spread of rare infectious diseases on insurance and the need for proactive risk management.
Health experts say neither virus currently poses an immediate global threat and is unlikely to spread anywhere like COVID-19 has. However, the World Health Organization has warned that high positivity rates and an increase in Ebola-related cases and deaths point to the possibility of a larger outbreak.
Overall, AM Best expects the industry to be “well-positioned” to understand and manage potential risks through risk management, reinsurance or other mechanisms.
AM Best said the key challenge could be maintaining rate adequacy if reinsurance rates rise amid a potential widespread outbreak. Meanwhile, AM Best noted that people have cut back on discretionary spending in some areas, including insurance, suggesting companies that rely more on reinsurance may feel some of the impact before other insurers.
Sridhar Manyem, Senior Director of Industry Research and Analysis at AM Best, commented: “Since the outbreak, insurers have increased investments in areas such as telemedicine and digital or automated processes, and have addressed policy ambiguity through re-underwriting. Such strategies should help insurers strengthen their response capabilities, mitigate any direct losses from the outbreak, and help address more systemic epidemic or pandemic risks.”
The review noted that during ongoing global conflicts, these epidemics may cause a slowdown in the global economy, exacerbating economic anxiety and recession concerns, which may put further pressure on economies already suffering from the effects of conflicts in the Middle East.
Additionally, the Ebola surge has been driven by rising debt burdens in some African countries and declining donor support for health-related crises.
AM Best reports, “Microinsurance use has been reported to have increased significantly in emerging markets during the COVID-19 pandemic, but cuts in international aid and donor funding due to increased awareness of health and other related risks have hampered microinsurance initiatives from a premium subsidy and start-up cost perspective. In light of the cuts, African groups such as Risk Capacity Africa have begun high-level discussions to scale up disaster risk financing on the continent.”
Overall, these outbreaks may expose unexpected accumulations of risk, leaving insurers unable to mitigate the impact through geographic diversification.
AM Best added: “As the epidemic has demonstrated, increased global and economic mobility can also facilitate the spread of epidemiological risks, and if not coordinated globally, the effectiveness of containment measures is often limited. Insurers should plan for disease outbreaks from an enterprise risk management perspective and conduct regular stress tests to assess non-modelled risks.”
Furthermore, the ratings agency warned that even if either virus is contained or proves to be limited and/or localized, it could still put pressure on countries that rely on tourism activity to drive economic growth, as has been seen during the pandemic.
