Global Pandemic: Potential Economic Fallout from H1N1 influenza A

It is too early to tell whether the current wave of H1N1 influenza A (commonly referred to as swine flu) cases will develop into a global pandemic. However, insurance companies are already scrambling to identify and deal with the potential economic fallout of the outbreak.

The most obvious effect of a potential pandemic will be directly linked to the wave of severe illnesses and deaths that would force health and life insurers to pay out a surge of claims. Many insurers were already prepared for this, having propped up their capital and reserves in 2003, during the SARS crisis, or 2005, when an avian flu virus outbreak raised the specter of a global pandemic. Apart from the health and life issues are the economic losses that may result from possible illness-related business disruptions and closures. Companies that carry various forms of business interruption protection may have claims which arise as a consequence of a global pandemic, unless their policies exclude losses from such catastrophic events. Furthermore, if these disruptions cause harm to the financial markets, insurance companies would face the potential loss of value of the stock and bond portfolios in which they invest their premium dollars. Some insurers are already considering whether they need to raise additional capital to withstand these economic stresses.

More than 40 million people died during the Spanish flu pandemic in 1918 and 1919, and experts have estimated that a similar global flu pandemic today could cause up to 120 million deaths and $200 billion in economic losses.