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Coronavirus Spread Reveals Coverage Gaps

Although the coronavirus first diagnosed in China’s industrial city of Wuhan is continuing to spread worldwide, experts predict its impact on the property-casualty insurance industry will be minimal. But that does not mean that the pathogen, known as the 2019 novel coronavirus (COVID-19), should be ignored.

At press time, COVID-19 has the potential to become a pandemic according to the World Health Organization (WHO), which is calling for $675 million to cover a global preparedness and response plan.1 COVID-19 is often compared to severe acute respiratory syndrome (SARS), which raised panic in the early 2000s. Both airborne illnesses initially spread from animal to person, then person to person.

There are two observable differences between COVID-19 and SARS. For starters, the total number of cases for COVID-19 has reached 93,164, according to WHO, with thousands being added to the count daily. While cases have been reported in 77 countries, most of the victims are in China. At press time, the illness so far has caused 3,199 deaths, a 3.4% case fatality rate.2,3

From late 2002 to the summer of 2003, SARS spread to about 8,000 people, causing 774 deaths or a case fatality rate of 9.6%. Victims were predominantly in China, but the pathogen spread to 26 countries.4 The total estimated economic impact of SARS was about $50 billion according to Metabiota, which tracks and anticipates the social and economic repercussions of pathogenic microbial agents. Another coronavirus, the Middle East respiratory syndrome (MERS), affected 27 countries and killed 858 people, or 35% of the 2,494 victims, according to WHO.5

How far a disease spreads and the resulting fatality rate also depend on the originating country’s ability to combat it. Chinese officials have initiated the most extensive quarantine in history, requiring about 60 million citizens to remain in lockdown to quell the spread of the highly contagious pathogen. There are concerns that China did not call for the police-enforced quarantine soon enough, however. There is also a suspicion that the country is not being entirely forthcoming. “We don’t exactly know when the outbreak started in China. It is still at the beginning of the outbreak,” says Cathine Lam, a property-casualty actuary at Metabiota who joined the company after seeing the impact of SARS (see AR Nov/Dec 2017).

P&C Implications

In an interconnected world, the economic implications of COVID-19 are expected to affect transportation, hospitality, retail, manufacturing and other sectors. However, there will be little impact on P&C insurance, says Robert P. Hartwig, clinical associate professor at the Finance Department and director for the Center for Risk and Uncertainty Management at the University of South Carolina. Commercial property and business interruption coverages generally restrict coverage to perils involving physical damage, he explains.

Few workers’ compensation claims stem from occupational diseases of any sort. Travel insurance could honor claims if the disease was contracted while visiting China, or a flight was cancelled by an airline or a government.

Due to the current epidemic, insurance brokers are also becoming more interested in offering related coverage to their customers, Lam says. Yet, insurers in general have a limited appetite for covering non-physical damage, says Christopher Lang, global placement leader, U.S. & Canada, for Marsh LLC. Working with customers desiring the coverage “tends to be a sophisticated conversation,” including a “parametric type” of policy language. Marsh offers a product tied in with Munich Re and Metabiota called Pathogen RX which provides business interruption coverage for outbreaks.

Actuarial Involvement

Actuaries can play a role in expanding business interruption insurance to cover disease outbreaks. “Insurers and actuaries should monitor the spread of the virus and identify any possible vulnerabilities,” says Hartwig. “Contingency plans should be developed in the unlikely event the virus reaches epidemic proportions in the U.S., where lines such as workers’ compensation and event cancellation could be most impacted.”

Lam also encourages actuaries to contact her for more information. “I don’t like to see history repeat itself,” Lam says. “There is a pattern of economic losses, and I feel insurance actuaries can find relief for a lot of these losses.”

Annmarie Geddes Baribeau has been covering insurance and actuarial topics for nearly 30 years. Find her blog at www.insurancecommunicators.com.

1 https://www.who.int/news-room/detail/05-02-2020-us-675-million-needed-for-new-coronavirus-preparedness-and-response-global-plan
2 http://who.maps.arcgis.com/apps/opsdashboard/index.html#/c88e37cfc43b4ed3baf977d77e4a0667
3 https://www.epidemictracker.com/2019-Novel-Coronavirus-2019-nCoV
4 https://www.who.int/csr/sars/country/table2004_04_21/en/
5 https://www.who.int/emergencies/mers-cov/en/