China’s new coronavirus outbreak may never cause a significant number of health insurance or life insurance claims in the United States, but it’s already joined two other coronavirus outbreaks — Severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS) — as something that will shape how life insurance actuaries, investors and regulators see insuring people against the risk of dying for decades to come.
The outbreak may already be big enough to make life insurance think harder about life insurance pricing and coverage provisions related to major contagious disease epidemics.
The new Chinese coronavirus has shown that, even today, with modern diagnostic tools and medicines, and lessons from fighting SARS, MERS and the Ebola virus fresh in public health officials’ minds, keeping new contagious diseases under control can be surprisingly difficult.
In spite of all of the trillions of dollars managed by passive funds that take few or no actions based on current news, the active traders who are still buying and selling stocks sent the Dow Jones Industrial Average stock index down more than 450 points.
Reporters at Bloomberg, CNBC and the Associated Press attributed the drop to investors’ concerns about the impact of the new coronavirus, and efforts to keep the new coronavirus from spreading.
The Data
Most of the reported confirmed cases of the new coronavirus have occurred in Wuhan, the capital of China’s Hubei province.
Officials at the National Health Commission of the People’s Republic of China said today that they have recorded a total of 2,744 confirmed cases of infections caused by the new coronavirus. Officials there say they are tracking 5,794 suspected cases of coronavirus infection and keeping 30,453 additional people under medical observation.
Officials in China have reported only 80 cases of death resulting from the new coronavirus, but they have reported only 51 known cases of people recovering from confirmed coronavirus infections.
Officials at the European Centre for Disease Prevention and Control reported today that, as of today, world public health agencies have confirmed 45 cases of coronavirus infection outside of China.
The U.S. Centers for Disease Control and Prevention (CDC) has identified five confirmed cases in the United States. Another 73 people in the United States may have coronavirus infections but are still waiting for their test results to come back.
Gordon Woo, a catastrophe risk expert at Risk Management Solutions Inc., wrote today, in a blog entry aimed at the financial institution risk management community, that China’s coronavirus impact numbers are probably too low.
Woo cited risk analyses from Neil Ferguson, head of the World Health Organization Collaborating Center for Infectious Disease Modeling at Imperial College London.
Based on the number of coronavirus cases appearing outside of China, there must be at least 4,000 cases in the Wuhan area, alone, and the virus must spread fairly easily from person to person, according to Woo’s summary of Ferguson’s analysis.
The Impact
The mere threat that the new Chinese coronavirus could cause something like a bad influenza epidemic in the United States could have an impact on U.S. life and health insurers, because insurers have to think about events that could throw off claim numbers well in advance.
In 2006, for example, the Insurance Information Institute published an analysis of viral pandemic risk by Steven Weisbert, an economist.
Weisbert noted that the kind of moderate flu pandemic that hit in 1968 could lead to the equivalent of about $15 billion in extra U.S. life insurance claims, in 2006 dollars, and that a severe pandemic, like the 1918 “Spanish flu” epidemic, could lead to more than $155 billion in life claims.
In 2018, U.S. life insurers paid about $80 billion in death benefits, and they reported a total net operating gain of just $6.5 billion from life insurance, along with a total net gain of $28 billion from life insurance and annuities combined.
Life insurers use reinsurance arrangements and other tools to limit exposure to risk.
But, if they had no access to those tools, a coronavirus epidemic similar to the 1968 Hong Kong flu could eat up about half of U.S. life insurers’ life and annuity operating profits for a year. An outbreak comparable to the 1918 flu pandemic could eat up about five years of life and annuity operating profits.
Chinese officials have said that about 17% of the hospitalized patients with confirmed cases of the new coronavirus have needed mechanical ventilation. In 2015, researchers published data suggesting that the median cost of caring for older patients who need mechanical ventilation is roughly $28,000.
If the new coronavirus caused the equivalent of an extra bad flu season in the United States, and led to about 10,000 extra people getting mechanical ventilation, the new coronavirus could lead to about $280 million in claims just for the people who needed mechanical ventilation, according to ThinkAdvisor calculations.
Here are five ways the new coronavirus may already be starting to affect the U.S. life and health communities.
1. The coronavirus outbreak is fueling advocates of single-payer, government-run health care systems.
Supporters of Bernie Sanders’ “Medicare for All” health finance propose are posting that the new coronavirus will spread quickly in the United States because lack of health insurance and high out-of-pocket costs will cause many people to go without proper care.
Health insurers may have to work with the Trump administration and state insurance regulators to adjust policy cost-sharing requirements on an emergency basis, to eliminate the possibility that deductibles and coinsurance requirements will keep people from getting coronavirus care.
2. The coronavirus outbreak is creating the possibility that life and health groups will need to ask state and federal regulators for flexibility.
Insurance groups may soon be asking for everything from cost-sharing flexibility for people with health savings accounts who may have coronavirus infections, to temporary provider network adequacy waivers, and to help from the federal government with paying health care, isolation and quarantine costs.
3. The coronavirus outbreak is giving a boost to health insurers’ telemedicine programs.
The more severe a coronavirus outbreak gets, the more public health officials will want to have patients get as much care as possible in their own homes. Health insurers remember that lesson even if the current coronavirus outbreak fizzles out.
4. The coronavirus outbreak is forcing insurers to review pandemic preparedness plans.
Insurers may already be looking at whether they have the right systems in place to maximize the number of employees who can work from home, and whether they have enough cross-training in place to keep departments operating if many employees are out sick at the same time.
5. The coronavirus outbreak is drawing attention to life reinsurance, life and health catastrophe bonds, and other risk management arrangements.
Analysts at the National Association of Insurance Commissioners’ Center for Insurance Policy and Research have noted in an analysis of pandemic risk that one concern is uncertainty about how well the counterparties will handle a pandemic shock. Counterparties are likely to get extra questions about their financial resources.