Munich Re takes the first steps to limit pandemic coverage.

Infectious diseases cover has extended too far and Munich Re plans an exclusion to limit cover for losses for pandemic risks, says Heinrich Eder, Munich Re Australia managing director. He said the exclusion would be added to relevant treaty and facultative contracts from 31 December 2006. “Naturally we are prepared to amend or remove the exclusion, if it can be demonstrated that no exposure from highly contagious diseases will impact the reinsurance,” he said.

Eder believes insurance for infectious diseases is “a challenge” for the market and added that Munich Re had identified business interruption in material damage policies as the key potential exposure for its non-life portfolio.

Market losses from a severe pandemic outbreak could run into “billions of dollars”, although it was difficult to quantify exposures with accuracy or confidence. Eder said the reinsurer was “prepared to consider continuing to provide a limited form of coverage, as long as it clearly excludes losses caused by a quarantinable disease listed in the Australian Quarantine Act 1908, as amended.” That would still allow localised coverage for individual business interruption exposures, while eliminating difficulties associated with broad national and international accumulations. “It is more in line with the original intention of the coverage.”