The Intelligent Quarterly from the publishers of The Insurance Insider

Summer 2018

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Pandemic protection

In this interview Kimber Lantry, executive vice president, Axis Insurance and head of Axis Healthcare, outlines the thinking behind Axis' pandemic cover for hospitals.

Insider Quarterly (IQ):
What prompted Axis' decision to launch a pandemic cover for hospitals?

Kimber Lantry: Following the recent worldwide Ebola crisis, several brokers that represent hospitals and healthcare systems approached Axis and asked us to develop an insurance product that would address the financial losses and extra expenses that hospitals can incur due to the interruption to their business caused by the outbreak of a pandemic.

After consulting with our distribution partners, clients and hospital risk managers, we launched an innovative new medical catastrophe business interruption (BI) product in early 2016 for hospitals in the US to protect against loss of revenue caused by the outbreak of a contagious disease.

The Axis Healthcare Medical Catastrophe Business Interruption and Extra Expense product includes coverage for any disease that is transmitted by direct or indirect contact. This first-of-its-kind product also provides coverage for diseases that have not yet been discovered by science, or a disease that could mutate into a pandemic at some point in the future.

IQ: Are pandemics still largely an unmodelled risk, or is there a growing bank of data and analysis relating to this peril?

Kimber Lantry: The dilemma facing hospital risk managers, and the brokers that work with them, is that there is only so much pandemics data available due to the relatively limited occurrence of such outbreaks. Therefore, it is difficult to predict with a high level of certainty when, where and to what extent a pandemic outbreak will impact a particular region.

In our discussions with hospital executives, hospital risk managers and our distribution partners, we quickly determined that the high level of uncertainty around pandemics is a major factor in causing BI losses to these facilities, if and when an outbreak occurs.

How the public reacts in the hours and days immediately following a pandemic outbreak is often out of a hospital's control. But what is in hospitals' control is how they manage the potential losses to their operations and to their business.

Axis provides expertise and support on a BI and extra expense basis to help hospitals quickly recover from what can be significant financial losses and reputational impact due to the outbreak of a pandemic.

IQ: What would you identify as the key factors involved in increasing the spread of pandemics?

Kimber Lantry: The global spread of pandemics can't be blamed on any single cause. Rather, it's a combination of factors.

These include: changing land use and global migration patterns, which allow humans to explore and live on land never before inhabited; the spread of the global transportation system, which enables disease to quickly spread across both cultures and regions in ways that previously were not possible; and climate change and resource extraction and the ongoing impact each is having on how diseases spread, mutate and eventually are eradicated.

In addition, better surveillance, data collection and analysis by scientists and governments around the world are making people more aware of the growing financial impact of pandemic outbreaks.

"It is difficult to predict with a high level of certainty when, where and to what extent a pandemic outbreak will impact a particular region"

IQ: What, specifically, is covered by the Axis pandemic policy, and how is it triggered?

Kimber Lantry: Axis Healthcare Medical Catastrophe Business Interruption and Extra Expense insurance covers any transmittable disease.

This insurance, with limits up to $50mn, protects a hospital's revenues through a BI policy, which also includes coverage for extra expenses, including a $1mn sub-limit for disposal of hazardous waste and a $100,000 sub-limit for public relations professionals to help the hospital communicate with the public and the media in the immediate aftermath of a pandemic outbreak (subject to the terms and conditions of the policy).

The policy responds when the contagion directly results in any one of four triggers: a governmental quarantine of a hospital; if 25 percent or more of the medical personnel do not come to work; a 25 percent or more reduction in inpatient stays; or a 25 percent or more reduction in emergency room visits.

IQ: Has the product changed since it was first launched and, if so, how?

Kimber Lantry: The biggest change we made is advancements to the data analysis and actuarial approach of the product. We made these changes following input from clients and our distribution partners to better meet their needs surrounding BI and extra expenses associated with pandemic outbreaks.

In doing so, we were able to lower the overall cost of the product to ensure we are better able to provide hospitals with the coverage they need to effectively manage this unpredictable - and potentially catastrophic - risk.

IQ: You currently offer the product in the United States. Do you have plans to roll it out across other geographies?

Kimber Lantry: We are exploring the expansion of this product into a number of international markets, including those in which the government provides either nationalised or highly subsidised healthcare or hospital services.

In such countries, the product can be customised so that it can offer more robust extra expense coverage to manage the additional unplanned expenses that can occur following the outbreak of a pandemic.

We are also looking at ways we can expand our BI and extra expense coverage to begin offering it to physicians and medical groups.

IQ: What plans, if any, do you have for increasing limits and/or for expanding the scope of coverage?

Kimber Lantry: We continue to work with our distribution partners, hospital risk managers and other relevant parties to evaluate the coverage limits of this insurance and make adjustments where necessary

IQ: Do hospitals face greater risks from pandemics than the public in general? If so, what are those risks?

Kimber Lantry: Hospitals are absolutely at a greater risk from pandemics than the general public. During the SARS epidemic in 2003, 22 percent of the cases in Hong Kong were healthcare workers. The same pattern emerged in South Korea in 2015 during the MERS epidemic - 18 percent of the cases were healthcare workers.

Even if healthcare workers avoid contracting a disease during an outbreak, they are often quarantined, which can have a serious impact on a hospital's operations and ability to generate revenue. The typical quarantine for a healthcare worker during an outbreak is two weeks, for Ebola it's three weeks. That's weeks' worth of lost labour, which significantly increases costs for hospitals.

Axis covers the financial losses that result from the interruption to business activities as a result of a pandemic outbreak. Considering how susceptible healthcare and hospital employees are to getting sick during such incidents, hospitals need to manage this growing risk to their financial health.

Kimber Lantry is executive vice president, Axis Insurance and head of Axis Healthcare.

This article was published as part of issue Spring 2017

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