Preparing for Pandemic

Pandemic is one of the top risks businesses must prepare for as a result of globalisation. That was a conclusion of Lloyd’s most recent 360 Risk Insight report, Globalisation and Risks for Business, launched by Lloyd’s Chairman Lord Levene earlier this month. As globalisation enables people to move around more easily, and more businesses trade internationally, the risk of a widespread and devastating pandemic increases, the report says. 

According to the research, globalisation has "created conditions which threaten to propel pandemics across the globe". It added that the "challenge for business is to understand how to prepare for an increased likelihood of pandemics".

Adapting to new risks
Companies face three main specific threats in the event of a pandemic: human resource depletions - as staff become ill or are quarantined at home; interruptions of services and breakdowns in the supply chain due to staff shortages; and the loss of customers and markets as confidence collapses and distribution systems are disrupted.

Lord Levene said that business models must adapt to reflect new risks: “Business models, and particularly our risk management systems must change as the risks change. We cannot simply try to hide away from the risks, which travel further and faster than ever before."

Thinking ahead
In the event of a pandemic, the Lloyd’s report says that businesses that are able to provide their staff with vaccines will be in a relatively strong position. Business leaders should also develop contingency plans for their organisations that enable workers to remain at home or work from remote locations. A comprehensive risk audit would also help identify key workers and time-critical vulnerabilities so that disaster plans can be put in place. 

Trevor Maynard, Manager, Emerging Risks at Lloyd’s said, “Given the large amount of information that is available to help with planning, businesses that do not take adequate steps to prepare for a pandemic will not only lose out to their peers, but could leave themselves open to Directors’ and Officers’ claims.”

Quantifying pandemic
The H5N1 (‘bird flu’) virus is currently seen as the most likely and potentially most devastating pandemic. Though the full impact of a pandemic is not known, an outbreak of H5N1 could pose a threat as great as the Spanish flu pandemic of 1918 which killed between 25 million and 40 million people.

During a panel discussion to launch the report, Andrew Kendrick, Chairman and CEO, Ace European Group, said that the threat of pandemic is the one risk in the report that he is most concerned about, pointing out the difficulty of quantifying such a risk from an insurer’s perspective. 

“Pandemic risk could have such a devastating impact on people and the population… When you try to cope with something of pandemic proportions, how can I possibly price for that risk?” he said.  “The truth is, I don’t think we are.”

In October 2008, Lloyd’s released an Emerging Risks report called Pandemics: Potential insurance impacts, which discusses the impact of a pandemic on underwriting losses and investment returns.