Credit ratings agency AM Best finds that insurance companies are well-prepared to handle any direct impact from the recent outbreaks of the Ebola virus and Andes hantavirus, thanks in part to the “lessons learned” from the COVID-19 pandemic in coverage gaps and systemic vulnerabilities.
The latest outbreaks are putting a renewed focus on the insurance implications of the spread of rare communicable diseases and the need for proactive risk management, according to AM Best’s commentary, “Insurers Better Prepared For Rare Disease Outbreak Amid Lessons From COVID-19.”
Health experts have said that currently, neither virus poses an immediate global threat nor is expected to spread anywhere near the scale of COVID-19. However, the World Health Organisation has warned that the high positivity rate and increasing number of Ebola-related cases and deaths point toward a potentially larger outbreak.
Overall, AM Best expects that the industry is in a “good position” to understand and manage the potential risks through exposure management, reinsurance, or other mechanisms.
According to AM Best, in the case of a potential widespread flare-up, a key challenge may be sustaining rate adequacy if reinsurance rates were to harden. Simultaneously, AM Best notes that people have cut their discretionary spending in certain areas, including insurance, suggesting companies with large reinsurance dependency may feel some impact before other insurers.
Sridhar Manyem, Senior Director, Industry Research and Analytics, AM Best, commented, “Since the pandemic, insurers have increased investments in areas such as telehealth and digital or automated processes, as well as addressed policy ambiguities through re-underwriting. Strategies such as these should aid carriers in increasing their response and mitigate any direct losses from these outbreaks and assist against more systemic types of epidemic or pandemic risks.”
The commentary notes that these epidemics could contribute to a global economic slowdown during ongoing global conflicts, exacerbating economic anxiety and recession fears, which could cause further strain on economies already suffering from the effects of the Middle East conflict.
Further, the Ebola surge has occurred as some African countries are experiencing mounting debt burdens while donor support for health-related crises is dwindling.
AM Best report said, “Although the uptake of microinsurance in emerging markets reportedly increased notably during the COVID-19 pandemic, due to heightened awareness of health and other related risks, cuts to international aid and donor funding have hampered microinsurance initiatives from a premium subsidy and startup cost perspective. In light of the cutbacks, groups in Africa, such as African Risk Capacity, have commenced high-level discussions to scale up disaster risk financing on the continent.”
Overall, these outbreaks can expose unexpected accumulations of risk, leaving insurers unable to mitigate the effects through geographic diversification.
AM Best added, “As demonstrated by the pandemic, increased global and economic mobility can also catalyse the spread of epidemiological risk, with containment measures generally limited in effectiveness if not coordinated globally. Insurers should plan for disease outbreaks from an enterprise risk management standpoint and regularly stress test to assess non-modelled risks.”
In addition, the rating agency warns that even if either virus is contained or proves to be limited and/or localised, it still may weigh on countries dependent on tourism activity to drive economic growth, as was seen during the pandemic.
