US life re/insurers must wake up to the threat of an avian flu pandemic

The potential damage to the industry from a bird flu pandemic cannot be underestimated, cautioned the Insurance Information Institute. In its report on avian flu, economist Dr Steven Weisbart warned that even a moderate outbreak would cost US insurers alone $31bn in additional life claims.

A severe pandemic - equivalent to the 1918-1919 Spanish flu outbreak - would increase US life claims by $133bn and probably bankrupt the weakest insurers.

At the time of writing, the H5N1 flu virus had infected 147 people in six countries, leading to 78 deaths - a mortality rate of over 50%. Four of these deaths were in Turkey, leading to fears that the virus could spread through Europe. All cases are thought to have resulted from close contact with poultry, but scientists worry it could soon mutate and become infectious among humans.

"H5N1's really striking aspect is its lethality," said Dr Weisbart. H5N1 appears to be even more lethal than the Spanish flu virus, which killed around 2.5% of those infected. Mass mortality of working-age policyholders is the main threat to insurers. In a typical year, 36,000 very young, weak or elderly Americans die of influenza. But pandemics can turn things upside down. Of the 675,000 Americans who died of the Spanish flu in 1918-1919, by far the highest mortality was among 25-34 year olds.

Today, economically active people routinely hold individual or group life cover. If one million average policyholders were to die from influenza, Dr Weisbart calculates, US life insurers would face an $80bn bill - more than twice what they normally pay out for deaths by all causes put together.

And the US Congressional Budget Office estimates that a severe flu pandemic would reduce US GDP by 5% - equivalent to a typical recession.

Can insurers help mitigate the damage? "There's a need for accurate, complete, helpful information," says Dr Weisbart. "Insurance companies don't see themselves as first responders here, but they could have a role in working with the authorities to promote quick diagnosis, treatment and containment."