Flying Under the Radar

H5N1, the avian influenza strain that has killed more than 185 people in Asia and Europe, is expected to make its way to American shores, either through migratory birds or infected fowl smuggled into the country. But unless the virus mutates to allow human-to-human transmission, the death rate should be minimal.

On the other hand, if the virus does indeed mutate, the death rate may exceed the 50 million people killed by the 1918 Spanish Flu, the deadliest and most infectious known influenza strain.

The bird flu, as H5N1 is more commonly known, has primarily affected bird populations in China, Hong Kong, Laos, Korea, Japan, Vietnam, Thailand and other Asian nations. Individuals who have died from the disease caught it through contact with infected birds. While the foul fowl initially were confined to Asia, last year they made their way across Europe. It is only a matter of time, scientists say, before they fly our way.

The Potential Toll

The strong possibility that H5N1 will mutate and provoke widespread transmission of the disease among humans is alarming. If reassortment—the scientific term for virus mutation—occurs, the death toll will be catastrophic. The U.S. Department of Health and Human Services says a moderate pandemic could produce 209,000 fatalities in this country, and a severe pandemic could cause 1.9 million deaths.

The economic toll in the United States is more difficult to gauge. It depends on pre-disaster planning by the government, companies and individuals to keep businesses and services flowing. A flu pandemic might cause 40% of the workforce to stay home to avoid infection, estimates indicate. The government is walking a tightrope between a dire need to alert people to a potential crisis and caution about overstating the facts. “I want to be careful not to panic people,” says Francis Townsend, White House Homeland Security advisor to President Bush. “A human pandemic has not begun and we cannot say whether or not a pandemic will begin.”

Insurance Industry Liability

For the global insurance industry, an avian flu pandemic would hit various parts of the industry differently. Most observers believe the property-casualty industry will walk away from the disaster virtually unscathed. Expectations are for a modest increase in workers’ compensation claims, largely from health care workers and individuals working in the poultry industry who are more vulnerable to infection. Short-term disability claims may rise because of the number of infected people unable to work. Business interruption claims, on the other hand, will not spike since corresponding damage to property triggers coverage. In the area of liability insurance, some people may file negligence lawsuits accusing a company of helping to spread the disease, although many observers believe this is unlikely.

While employer-sponsored health insurance claims for avian flu medical problems will increase, overall health insurance claims may fall because people considering elective surgery won’t want to risk infection by undertaking the procedures. Many people also might die before they make it to a hospital.

The big trouble spot is life insurance. A study by the New York-based Insurance Information Institute indicates that a moderate pandemic similar to influenza outbreaks in 1957 and 1968 could cost insurers $31 billion in additional claims. A severe pandemic on the order of 1918 could cost up to $133 billion—more than half the industry’s surplus.

Breakout Scenarios

In a typical year, 36,000 Americans, mostly the young and old, die from various influenza strains. The rest of us either get a flu shot or soldier through the disease. H5N1 is a democratic bug, affecting people equally, regardless of their age and state of health. Fifty percent of individuals who contract the virus die, enduring skyhigh fevers, agonizing muscle aches, severe nausea and bone-chattering chills.

If H5N1 mutated to compel human-tohuman transmission, the pandemic would spread quickly. “We’ve identified 30 travel nodes in the United States that are key travel hubs, through which more than 10,000 people pass through each day,” says Andrew Coburn, vice president of catastrophic research at Newark, Calif.-based Risk Management Solutions, a catastrophe modeling agency. “Whether it arrives on the East Coast or the West Coast won’t make much difference. There seems to be no medical reason why a highly virulent strain couldn’t spread quite rapidly through a large extent of the population, theoretically causing very high death tolls, limited largely by behavioral actions.”

Most scientists believe it is more a matter of when the virus will reassort rather than if. All H5N1 need do is infect a person who also becomes infected with a conventional human-to-human transmissible bug. The two strains then trade their genes to create a hybrid, killer flu. “Many scientists put the average annual risk of human-to-human avian flu transmission in the 10% to 15% range,” says Howell Pugh, FSA, president of Indianapolis-based Howell Pugh Consulting, an actuarial firm. “In five years—if the virus has not occurred —the risk scale tips to the point where it is now likely to happen in the next five to 10 years.”

Life Insurance Stakes

If that occurs, Risk Management Solutions, which has developed a probabilistic model assessing the risk of bird flu, says there is a one in five chance the virus will be more severe, mortality-wise, than the 1918 Spanish Flu. “We believe that many insurance companies may be underestimating their risk if they assume that the 1918 pandemic is the worst-case sce- nario,” Coburn says. “Pandemic influenza could potentially deal insurers a triple whammy, simultaneously causing unprecedented life and health claim losses, investment portfolio downturns at a time when insurers most need liquidity and reduced staff and management productivity.”

The III study indicates that a severe pandemic would cost group life insurers $54.4 billion. “Under these assumptions, virtually every company’s group life claims would surpass premiums, dissolve any policyholder dividends and possibly force them to use some corporate surplus,” the study by economist Steven Weisbart states. “We estimate that perhaps five to eight of the 30 leading group life insurance writers might struggle to pay their group life claims.”

A severe pandemic would cost individual life insurers $78.7 billion. “With their surplus funds down from paying influenza claims, reinsurers raising rates dramatically and wary of the effects of a second or third wave of the flu, at least some insurers may be reluctant or financially unable to write many new policies,” Weisbart states. “Many publicly held insurers and reinsurers may find it necessary to raise additional capital from investors.”

Pugh agrees with this consensus. “I may come across as alarmist and negative, but if you look at 1918 as ‘worst case,’ and apply the 2.5% mortality rate from that pandemic on only 25% of the people who contract H5N1, we’re talking 6.25 deaths per thousand,” he explains. “While claims for primary life insurers would eat up half the industry’s surplus, reinsurers would incur claims that are five to eight times their surplus.”

Rodney Clark, director of North American insurance ratings at Standard & Poor’s, which conducted its own study on the subject, says claims for life insurers from a severe pandemic will not be “big enough to have a major financial impact to life companies, as long as the pandemic is relatively short-lived. We believe the industry might be able to withstand a 2 million-person death scenario.”

He adds that life insurers are “minimally ruffled” about the possibility of an avian flu pandemic and its potential impact on their industry. “Until human-to-human transmission actually happens, they see the potential for damage to their financial health as marginal,” Clark says. “We generally agree with this assessment.”

Ironically, a pandemic could be a shot in the arm for life insurers. “After the 1918 flu, life policy sales increased as a record number of people applied for coverage,” Clark says.

Proactive Stance Begins

In May, the Bush Administration released a comprehensive plan to deal with a possible pandemic. President Bush proposed a $7.1 billion budget to address the pandemic, but warned that the government can do little to assist communities affected by the disease and the related economic impact. Companies and individuals must do what they can to reduce exposure and keep the economy moving, he stressed.

A bird flu vaccine is the great hope, but like all influenzas, a flu shot cannot be developed until the actual strain is identified. Often, this takes at least six months. Given the anticipated speed of infection, millions of people would be too late to avail themselves of the vaccine. Another problem is traditional vaccine technology. “Scientists use 1950s methods for creating vaccines, growing them in chicken eggs,” Pugh says. “Since we’re talking about a bird flu, this becomes a problem. Moreover, we have only two vaccine manufacturing plants in the U.S. Almost all vaccines today are produced in Europe, so we’re woefully unprepared. We just won’t have the vaccine capability we need, especially if mutation occurs next fall.”

Tamiflu and Zanamivir, drugs that help people reduce the symptoms of more conventional flu strains and slim the chance of spreading, may offer some hope, but supplies are scarce. Face masks also may offer protection outdoors, but people would need to wear them constantly. The best way for people to avoid infection is immediate self-quarantining, but indoor confinement requires storage of emergency supplies, including food, water, prescription drugs and possibly even guns and ammunition to protect family members in the event of a truly catastrophic pandemic.

Prepare Your Agency

Businesses must prepare for the worst. “Planning well beforehand is essential,” says Diana McClure, assistant vice president of business protection at the Institute for Business and Home Safety, a Tampa, Fla.-based organization the insurance industry funds to reduce the social and economic effects of natural disasters. “Waiting until the event happens might very well be too late.”

McClure asserts that many businesses, including independent agencies and brokerages, must develop strategies permitting workers to remain home and telecommute. “Companies must develop business continuity policies that provide work-athome options, and do it now,” she says.

“They also should address their sick leave policies, given that people with avian flu, or those home attending to relatives sick with the flu, are likely to be out on leave a lot longer than is currently the case,” McClure adds. “And they should extend the time period of employer-sponsored health insurance to cover the cost of treatment. Employees need to feel their employers care about them and are taking their needs into account. You want them to remain loyal and work from home to the best of their ability.”

Another consideration is the point at which a company may need to close its doors. “If a certain number of employees are sick or at home caring for the sick, at which point does it make sense to shut down the office?” McClure says. “What if the public transportation network closed down? Or basic utilities shut down? Companies also need to consider when to curtail employee travel—not just to foreign countries but down the block to a customer. When do inter-company conferences halt? And are plans in place governing employee hygiene? Simple things like saying ‘handshakes are now forbidden’ must be articulated at some point. These various concerns should be discussed now and then codified into a detailed communications strategy and disaster plan.”

Russ Banham (bzwriter@aol.com) is an IAsenior contributing writer.

Open For Businesssm Self-Assessment

Is your agency ready for a possible avian flu pandemic? Take the following quiz, adapted for a flu pandemic.

• Have you reviewed your current sick leave and vacation policies to determine if any changes are necessary to meet the demands of a flu pandemic?

• Have you determined the minimal level at which your business could operate (e.g. staff, resources)?

• Do you have plans to stay open for business, even if you and your employees must work from home or other locations?

• If your employees needed to operate from home, do they have the necessary telecommunications and computer capacity to function?

• Are your vital records protected and accessible from alternative work locations, e.g. employees’ homes?

• Have you considered how the disruption of travel, meetings or conferences might affect your business?

• Have you considered alternatives if your current suppliers cannot deliver or your customer base is affected by the flu pandemic?

• Have you worked with your community—public officials and other businesses —to prepare for a flu pandemic?

Adopted from Institute for Business & Home Safety’s Open for Businesssm toolkit .