Life Insurance Quotes

Here’s a new wake up call for U.S. life insurance policyholders to remain vigilant as respects to the financial well being of their life insurance companies.  In a March 2006 report to investors, Morgan Stanley Equity Research issued a warning that a severe outbreak of the deadly H5N1 influenza virus, also known as the “bird flu” virus, could rock the U.S. life insurance industry to the tune of $133 billion, which is approximately half the total capital of the industry.

Morgan Stanley’s sobering report, which admittedly places the risk of such a catastrophe as “remote” and having a “low probability,” nevertheless provides a thought-provoking perspective on how U.S. life insurance companies might fare if faced with an unprecedented avalanche of death claims. 

The seriousness of the situation is underscored by the fact that Morgan Stanley has warned that “life insurance stands out as one of the industries most at risk,” says Nigel Dally, North America Life & Annuities analyst for Morgan Stanley and author of the report “Global Pandemic—Which Life Insurers Are Most Exposed.”

The world is watching, anxiously, to see if, as predicted, the strain mutates itself to allow person-to-person transmission of the virus.  A total of 105 people of the 186 infected worldwide have died of the disease since December 2003.  The disease has spread through Asia, the Middle East, Europe, and Africa, often hitting the poorest countries where the lack of modern disease control infrastructure can hinder its control.

As they closely track the spread of avian flu overseas, U.S. life insurance companies believe they’re financially insulated from catastrophe if the so-called “bird flu” were to infiltrate American soil on a “severe” outbreak basis.  Were this to happen, Morgan Stanley claims that there would be several life insurance company failures combined with the need to raise additional capital by the surviving life insurers.  In such a scenario, there’s no doubt that government bailouts and outright takeovers of life insurance companies would occur.

The Washington, D.C.-based American Council of Life Insurers (ACLI), whose 377 member companies account for 91 percent of the life industry's total U.S. assets, has confidently declared the industry fully capable of settling claims if avian flu reached epidemic, or even pandemic, proportions stateside.  Jack Dolan, managing director of media relations for ACLI, assured that the life industry has “reserves and surplus sufficient to cover all plausible scenarios involving avian flu.”

For instance, to allay fears and place the matter in proper perspective, Dolan explained that, “While life insurers have statutory capital and surplus of about $250 billion, they are actually holding some $4.2 trillion in reserves to pay claims.” 

“So, assuming reserves would cover about $27 billion of the claims, the other $106 billion, or 40 percent, would have to come from surplus,” states Dolan. 

While Morgan Stanley's report “might make interesting reading,” Dolan states that ACLI does not believe that it “adds anything to the knowledge base of insurers. Insurers are well aware of the potential risks that an avian flu pandemic would represent, and are closely following developments as they occur.”

Meanwhile, life companies “more oriented toward accumulation products, along with those offering permanent insurance, fixed annuities, institutional savings and pensions, would be less at risk.”

Containment is key

Indeed, the development that life insurers are watching carefully is the rate by which the flu strain spreads in Europe, Asia and beyond.  Life insurers are particularly curious to see how health experts deal with the containment aspects of this illness.

Avian flu often can be cured with large doses of existing medication such as Tamiflu.  At present rates of production, however, it would take a decade to make enough Tamiflu to treat a fifth of the world's population, reports Chicago-based The Heartland Institute. That situation may improve soon as the number of manufacturers and their vaccine output is increasing rapidly. In October 2005, the White House announced a $7.1 billion initiative to fight the threat of a flu pandemic, with a large portion of the money allocated for development and production of vaccines.

The Heartland Institute reports that health experts believe the U.S. is prepared for the task of combating the new avian flu virus because of the World Health Organization's work around the world: To wit, U.S. health officials were able to successfully combat the SARS condition in 2004.

And the fact remains that many variables must be considered to be able to determine the number of people who could catch and die from the avian flu, the U.S. Department of Health and Human Services projects that in a severe flu pandemic similar to the 1918 experience, 1.9 million people in the U.S. could die.

The HHS projects 209,000 deaths from a moderate influenza pandemic, based on the 1957 and 1968 outbreaks. In a typical year, 36,000 Americans die from the flu.

No specific risk models

Several life insurers contacted to discuss what efforts they plan to implement in light of the avian flu scare declined to discuss the specific details of their risk management strategies until they have had a better chance to monitor the situation closer.

But one thing seems to be abundantly clear: Unlike natural disasters, insurers face a heady challenge to establish precise risk modelling strategies to mitigate health-related catastrophes.

“Given the lack of modern experience with vast health disasters and the numerous public health ‘false alarms’—from mad cow disease to swine flu—it is more difficult to predict the effect of an influenza pandemic on life insurance companies than to forecast the potential damage from land-falling hurricanes,” comments Dr. Steven Weisbart, an economist for New York City-based The Insurance Information Institute (I.I.I.)

ACLI’s Dolan confirms as much, stating that there no specific short-term or long-term risk modeling strategies that life insurers can implement to better insulate themselves from catastrophic health events. “There are no models that can insulate the industry from catastrophic events. There are models, however, that can be used to help predict the cost magnitude of catastrophe, thereby helping insurers determine prudent levels of surplus to maintain.”

Presently, term life insurance rates are at an all-time low. Anecdotally, if a severe outbreak of avian flu—or another similar illness--were to ever strike the industry, Dolan says the industry is prepared to weather the storm, but some adjustments may be in the offing. “It could possibly cause a change in pricing philosophies at some life companies as they would have to work harder to build back their surplus. But such changes are only speculation, and each company would have to determine the strategy that fits it best,” Dolan comments.

Overall, the life insurance industry is keeping a vigilant, yet philosophical, viewpoint on the avian flu scare. “It should be pointed out that an event that would jeopardize large numbers of life insurance companies would have to be of epic proportions. Keep in mind that we have been doing business in the United States for 200 years. We’ve gone through a civil war, world wars, depressions, the 1919 epidemic, and more. We have the experience and financial depth to deal with what is unthinkable for most people,” concludes Dolan.