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As a result of the Ebola crisis in West Africa, World Bank president Jim Yong Kim has proposed an insurance policy to cover regional and worldwide disease outbreaks. According to the BBC, he said this could work like fire insurance: “The more you are prepared for a fire, like having several smoke detectors, the lower the premium you pay.” The implication is that the insurance market could be a force that drives countries to build up their health infrastructure.

Another organisation separately considering epidemic insurance is African Risk Capacity (ARC), a special agency of the African Union that helps member states plan for and respond to extreme weather. In 2013, the organisation established ARC Insurance Company, a firm that offers insurance against drought, and soon floods and cyclones, to 25 AU member states. Five countries have taken up the offer, with seven more planning to join them in May. The firm is a mutual, so any profits are reinvested in providing its service.

In January, the AU asked ARC to look into also insuring against epidemics such as Ebola. ARC programme director Joanna Syroka tells me she thinks it will be possible to offer such insurance schemes to one or two member states by 2017.

But she envisages some big technical and scientific challenges along the way.

The first is that, unlike for-profit insurers, ARC has a mandate to build capacity: for nations to receive a payout, they must have a coherent plan for how that money will be used to quickly and effectively respond to an outbreak. In the wake of Ebola, there is much debate about how best to respond to epidemics — so Syroka says a lot of work will be needed to help countries develop these plans.

Second, ARC payouts are what insurers call ‘index linked’. That is, money is only paid once an objective benchmark is reached. “In the case of drought, that could be below a certain threshold of rainfall,” says Syroka. So another task will be to agree what objective measures could be used to declare an epidemic. A threshold number of confirmed cases seems the obvious option, but Syroka notes that cases could be missed in certain areas, meaning more thought will be needed to make the measure reliable.

Third is the task of developing a computer model that calculates the risk of an epidemic occurring and spreading, then guides how much countries must pay for insurance. Many factors — such as where an epidemic starts, and the nature of the disease — can dramatically influence an epidemic’s progress. Syroka says this means the model would need to be more sophisticated than those currently used by ARC for modelling drought and cyclone risks.

Another question concerns data on epidemics. “With satellite rainfall data, we can see droughts and floods going back 30 years. Tropical cyclone data, I think we have that going back to the 1940s. But the historical data on outbreaks and epidemics — we just don’t know how good that is at this stage,” says Syroka.

Finally, there’s the question of ARC’s approach of ‘pooling risk’ – an approach to risk analysis that assumes countries are unlikely to experience crises such as droughts at the same time. This means it needs to hold less capital and so can afford to charge lower premiums: about 20 to 40 per cent lower than if it were to insure each country individually, Syroka estimates.

“But it’s not totally clear that this would hold true for epidemics — there are a lot of complicating factors,” she says. That means the savings from pooling risk may not be as impressive.
Syroka says epidemic insurance would be a great contribution to Africa regardless — at the moment nothing like this exists.
Joshua Howgego is SciDev.Net’s deputy news and opinions editor. @jdhowgego