Ebola insurance

With Equatorial Guinea coming to the fore and hosting AFCON 2015, after much speculation that the continent-wide tournament could take place in South Africa – the Ebola question – which started all this – has somewhat subsided. However, this is not about football. Instead, a situation that ordinary South Africans are faced with therefore, is whether or not we are insured enough against such a terminal illness if it where to make its way to our shores.

As things stand, life insurance companies don't specifically cover Ebola per se. It's not something like HIV/AIDS or TB, both of which are (or can) be critical illnesses but are taken with a higher degree of seriousness than most other diseases. Neither are unique to South Africa, but the insurers need and do view them from a South African [population] perspective, which has enabled them to make the models that adequately cover individuals. But what of Ebola, are we sufficiently prepared for such a pandemic? On the surface, the answer to that is no, and I will try to explain why down below.

There aren't enough studies that I've come across with specifics on the impact of Ebola on the broader financial health of the economy, let alone South Africa and its life insurers. However, as the virus reaches epidemic classification, I think it's fair to say that its impact would be alike other epidemics like (the worst scenario) SARS and (mild scenario) bird flu.

In a highly cited study in conjunction with the Actuarial Society of South Africa, assuming that Ebola where to become a moderate pandemic of similar nature to the Asian Flu, with excess mortality of 2%, it would cost life insurers R1.2-billion (adjusted for 2014 inflation) in claims. That doesn't seem like a large figure considering that the industry had over R2-trillion in assets it could liquidate to pay for these claims. However, the scenario becomes very different if Ebola where to turn into a pandemic like SARS. Both viruses have similar effects is that they are highly infectious, with Ebola even worse. With this, our claims could easily reach R252-billion (adjusted for inflation).

The 2007 research indicated that "the CAR of life insurance companies in South Africa is not meant to cover a pandemic" like Ebola or a severe flu, but rather a general volatility in claims experience. The reference to volatility meaning that there would be an unprecedented spike in the number of life assurance claims by policyholders.

The preparedness of life insurers for a moderate to a severe pandemic is limited. Think about it, how many life insurance products have been advertised to you cover such diseases? It's obvious business sense on the insurer's side not to do so because as things stand, we are more likely to die from heart attacks than Ebola. And also, as buyers of insurance, we don't really like being freaked out, so we don't go around thinking about severe illnesses like Ebola therefore we are less likely to be explicit about getting cover, nor do we want to pay that extra amount on our insurance premiums.

This situation will certainly overwhelm us, and the buffer we expect the [private] insurers to provide would not be sufficient, which then raises another question – would an alternate, government-sponsored insurance plan specifically for these kinds of illnesses seem far-fetched?