A flu pandemic in Australia could have a 32% direct impact on the profitability of a large insurer, according to Aon Benfield Asia Senior Broker Pierre Vende.

The impact on a smaller insurer could be as high as 76% with additional claims costing about $76 million. The larger insurer could be facing additional claims of up to $500 million, according to data prepared by Aon.

Mr Vende told the Actuaries Institute summit in Sydney last week a pandemic would see a rise in death and disability claims for life insurers and medical claims for health insurers.

“People wouldn’t be able to work and the duration of the event could be between seven and 10 months,” he says.

“There could also be sales volatility, with people suddenly seeking new or more cover. We could be looking at an impact of 30% on the profitability of the big insurers.

“It could alter annual mortality rates by 0.5% per thousand for two years.”

There would also be market risk for listed insurers as the Kobe and Tohuko earthquakes impacted global stock exchanges.

Mr Vende says the German DAX lost 1.2% of its value within minutes of both earthquakes while Hong Kong’s Hang Seng fell by 1.8%

“Munich Re and Swiss Re fell following the earthquake on speculation that they may face losses ‘somewhere in the $US10 billion ($10.3 billion) range’ even after certain costs were absorbed by Japan’s primary insurers and the government,” he says.

Market uncertainty would also be created due to there being no reliable statistical data on pandemics, he says.

Data can be modelled on previous pandemics by using the location and start date of the virus.

By looking at how easily the virus is transmitted and the duration of the illness, an idea of the possible impact on insurers can be created.

Modellers also need to look at the specific age groups the virus attacks, he says. But predicting how a new virus will react is an unknown science.