WIN Magazine - Summer 2014 - (Page 30)

FEATURE PANDEMIC INSURANCE IN THE EXCESS AND SURPLUS LINES BY ALYSSA BOUCHARD INSURANCE INDUSTRY 2014 AAMGA WHOLESALE INSURANCE WHITE PAPER WINNERS The AAMGA Education Foundation issues a Call for White Papers each Spring, inviting College and University students across the United States who are engaged in Risk Management and Insurance programs to submit research papers on topical issues impacting the wholesale insurance industry. Two Papers are selected based on the soundness of industry knowledge; usefulness to the industry; innovation and creativity, by a panel of insurance professionals. Winners receive a monetary scholarship and are invited to attend the AAMGA's 88th Annual Meeting, held May 18-21, 2014. More papers were received this year than in past years. The AAMGA Education Foundation congratulates Alyssa Bouchard, a graduating senior at Appalachian State University on her winning paper analyzing Excess & Surplus Lines solutions for Pandemic Exposures, and Whitney Rhymer, a graduating senior at the University of South Carolina on her winning paper pertaining to CAT Bonds. Abstracts of both papers follow (citations to references have been omitted), with complete copies having been placed on the AAMGA University's website at: education/whitepapers. A BOVE A BANKING crisis, natural catastrophe, or cyber warfare, the threat of a pandemic is the number one longterm risk for the insurance industry to be concerned with, as ranked by a Towers Watson survey of global insurance industry executives in December 2013 ("Insurers Say Global," 2013). Many business owners, unaware of the adverse effect a pandemic event could have on their business, do not carry the appropriate insurance for pandemic risk. The insurance industry, however, is aware of this threat. Pandemic risks are heightened in the modern age due to global travel, increasing populations, and a higher concentration of people in cities ("Pandemic: Potential insurance"). 2014 White Paper Winner Though they are low-frequency events, their high-severity nature makes them impossible to ignore (Baltz, 2006). As the E & S market typically leads an innovative response, it sees not only the risk, but the opportunity in a pandemic event. Through risk management practices, insurance coverages, and corresponding marketing strategies, surplus lines carriers can mitigate the effects of pandemics on businesses, and profit from this opportunity. carriers lost a combined seven billion dollars in revenue. Businesses reliant on global air travel were impacted. Park Place Entertainment, owner of Caesar's Palace in Las Vegas at that time, saw revenue drop fifty percent in one quarter due to the SARS event (Begley, 2013). Dr. Dennis Carroll, director of the U.S. Agency for International Development's programs on new and emerging disease threats said, "The biggest driver of the economics of pandemics is...risk aversion, as people change their behavior to reduce their chance of exposure," (Begley, 2013). In Lloyd's "Pandemics: Potential Insurance Impacts" report, the Emerging Risks Team expects a repeat of the 1918 pandemic event to "cause a global recession with estimated impacts ranging from 1% to 10% of global GDP" ("Pandemic: Potential Insurance"). Researchers at the Centers for Disease Control and Prevention estimate the total economic impact of a pandemic in  the  United States to be between $71.3 billion and $166.5 billion (Meltzer, Cox & Fukuda). THE BIG PICTURE Pandemics can devastate an economy. They primarily impact the airline and tourism industries, which are large contributors to the global GDP. During the 2003 Severe Acute Respiratory (SARS) outbreak, North American and Asia-Pacific airline EXPOSURES There are many business exposures to consider in a pandemic risk. Inevitably, a social disruption will occur; people will stay home to avoid infection ("Managing Influenza Pandemic", 2007). According to the CDC, 35% of the workforce could be 3 0 | v i e w t h i s i s s u e a t |

Table of Contents for the Digital Edition of WIN Magazine - Summer 2014

Cover Story: High Risks on the High Seas
The Rising Importance of Property Catastrophe Risk in the “New Normal” of the Nonadmitted Market
Claims Leakage: Plugging the Hole with Predictive Modeling
Managing Casualty Risks
Understanding the Data Viability and Uses for Underwriting Commercial Auto
2014 AAMGA Wholesale Insurance White Paper Winner: Pandemic Insurance in the Excess and Surplus Lines Insurance Industry
2014 AAMGA Wholesale Insurance White Paper Winner: Catastrophe Bonds: Looking Forward
Organizing Emerging Risks: AAMGA Formalizes a Collaborative Approach
In the WIN-ner’s Circle
Index to Advertisers

WIN Magazine - Summer 2014