Australian insurers have been reducing their coverage of pandemic infectious diseases in new business interruption (BI) policies in response to an Australian Prudential Regulation Authority (APRA) stress test taken late last year.

APRA says the test results indicate insurance claims would increase by more than 50% to $3.2 billion in the event of an avian influenza pandemic.

APRA canvassed 63 general insurers and reinsurers for their response to a scenario involving a 20% infection rate in the general population and a 0.5% death rate of those infected.

The increase in claims would largely result from BI (up 400%) or industrial special risk (up 120%) policies, with other lines of business largely unaffected.

A bird flu pandemic would affect general insurers more than their life counterparts, who reported a possible increase of $1.2 billion in annual gross direct claims. But if the scenario were adjusted to incorporate more fatalities, life insurers would be more affected.