AIR Worldwide launches global pandemic flu risk model

Catastrophe risk modeller AIR Worldwide has announced the launch of a new Pandemic Flu Model. AIR has developed the Pandemic Flu Model to capture the excess morbidity, mortality, and insurance losses caused by pandemic influenza events around the world. The model could be leveraged within mortality catastrophe bond transactions.

The new pandemic flu model contains over 18,000 simulated events, according to AIR. These range in severity from mild to severe and can start and spread anywhere in the world and last from months to years. The new model adds to AIR’s existing mortality modeling tools that enable clients to enter injury or life exposures in its natural catastrophe models to obtain estimates of loss.

“Pandemics are low-frequency events with a potentially high level of severity and impact to insurers and reinsurers in the areas of life, health, and disability,” commented Nita Madhav, senior scientist at AIR Worldwide. “Other lines such as workers compensation, personal accident, and business interruption may also incur significant losses, depending on policy specifics. This is the first AIR model to estimate losses due to infectious disease risk, and we’re confident that the pandemic flu model will provide clients with a more robust understanding of the risk and advanced capabilities for managing it.”

The model has been developed to capture the dynamics of disease transmission as well as both short and long-range population movements. It contains a hazard component which uses the latest scientific research to model disease ignition parameters, pathogen characteristics, and crucially the seasonality of influenza.

The model also factors in mitigation efforts during the pandemic, such as the development and administration of vaccines, antivirals, and travel restrictions. In terms of model output, factors such as infection severity, medical outcomes, and insurance losses are estimated by gender and age cohort.

AIR said that to develop the model it created a unique exposure database including worldwide population data, age distributions, sex ratios, and preexisting health conditions, all of which are factors that have a bearing on the severity, or otherwise, of an outbreak.

“The 1918 Spanish flu pandemic was one of the largest public health catastrophes of the past century, causing life insurance losses of nearly $100 million, which is comparable to nearly $20 billion today,” added Madhav. “Insurers striving to manage pandemic risk need to know that a modern-day pandemic on par with the Spanish flu of 1918 could occur. Of course, post-1918 medical advancements and the graying of the global population would affect the severity of a pandemic today. Probabilistic modeling accounts for medical advancements and other societal changes and enables a more complete understanding and management of pandemic risk than relying on the historical record alone.”

This now bring AIR firmly into play for any sponsors looking to transact excess mortality catastrophe bonds, providing cover for large-scale mortality events. Influenza is a modelled component of all mortality cat bonds to date and now AIR has a model ready for use for just this purpose. Historically RMS has been the modeller of choice for mortality cat bonds but AIR Worldwide is now catching up.