CRO briefing - Pandemics
Influenza pandemic: A prominent example for a mortality shock event
There has been much speculation about the likely timing and severity of the next influenza pandemic. This includes widely differing views as to how a pandemic might unfold and what excess mortality figures may result. Without any doubt, a pandemic would have a significant impact on both sides of the industry’s balance sheet and the size of the overall burden must therefore be evaluated.
An analysis of past scenarios is an essential prerequisite for a realistic evaluation or forecast of a potential future threat. However, as pandemics are relatively infrequent (only three in the last century) the pool of historical data is limited and over the same time major medical progress has been made.
This new position paper – issued by the CRO Forum – shows an approach to simulate a mortality shock event such as a pandemic. It investigates the question of which death rate would most likely arise today if an influenza pandemic as severe as the Spanish flu of 1918 were to occur. It is concluded that it is inappropriate to simply extrapolate the death rate observed in 1918 to today’s global population.
The publication also indicates how the insurance industry should prepare for the risk: a company’s risk management should include reliable business continuity planning (BCP) to ensure that operations can keep running despite a pandemic event. In addition, insurers can apply risk-modelling methods and stress tests to offer a better understanding of the potential impact of adverse scenarios such as pandemics. Based on this knowledge and depending on its risk tolerance, a company can reach an informed decision on which risk-mitigating measures to take.
The Chief Risk Officers of major (re)insurance companies have decided to address the challenge of a pandemic shock event within the CRO Forum’s Emerging Risks Initiative and communicating their view on how the insurance industry could address this risk.
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This study is non-binding and for reference purposes only.
CRO briefing - Pandemics
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