Lloyd’s human pandemic scenario reveals potential global economic loss of $13.6trn

11 Dec 2024

Lloyd’s, the world’s leading marketplace for insurance and reinsurance, has today published its latest systemic risk scenario highlighting that the global economy could be exposed to potential losses of $13.6 trillion USD over a five-year period from the threat of a hypothetical future human pandemic.

The global economic losses across the three severity levels modelled under the scenario range from $7.3 trillion in the least severe scenario to $41.7 trillion in the most extreme, equivalent to a reduction in global GDP of between 1.1% and 6.4%.

This is the sixth scenario produced by Lloyd’s Futureset and the Cambridge Centre for Risk Studies, which aims to equip risk managers, insurers and policymakers with data-based insights to aid effective preparation against the most significant risks facing society today.

From an economic perspective, the widespread impacts would be primarily driven by disruption across global industries due to local lockdowns and global travel restrictions. With the transportation sector worth over 10% of global GDP, sustained international travel restrictions could potentially result in significant economic costs.

The insurance industry has developed a range of specialist solutions to help manage the risks associated with pandemics, including affirmative cover for new outbreaks of known and unnamed infectious diseases, insurance for the development, transit and storage of vaccines, and protection against interruption or cancellation of events during a pandemic.

Read the scenario

“Our research shows that insurance is more than a financial safeguard; it is a critical enabler of societal resilience and recovery, and the insurance industry is well-equipped to help businesses and governments prepare for future pandemics with different complexities and variables.

As well as paying claims, insurers can support with advice on proactive measures to lessen the impact of potential crisis and can mobilise resources and expertise to support rapid emergency response and containment efforts.”

Rebekah Clement, Lloyd’s Corporate Affairs Director

Notes to Editors

A systemic risk is a low likelihood, high impact risk which affects either a systemically important global enterprise or multiple sectors, societies, or national economies. They can be global in impact, often hitting billions of people simultaneously. Other risk scenarios explored in the research include: cyber-attack, extreme weather events leading to food and water shock, economic stagnation and geopolitical conflict.
Produced in partnership with the Cambridge Centre for Risk Studies, the research explores hypothetical but plausible systemic risk scenarios and is complimented by an interactive data tool that allows users to reveal the potential economic and insurance impact of each scenario across 107 countries and at three levels of severity (major, severe and extreme).
Using global Gross Domestic Product (GDP) as its central measurement, Lloyd’s and Cambridge model calculates the global economic loss of a human pandemic scenario as:
o $13.6trn is the global economic loss over a five-year period (the probability weighted average across the three severities we have modelled)
o The global economic loss ranges from $7.3trn in the lowest severity scenario up to $41.7trn in the most extreme scenario
o The scenario severities have been given a probability of occurring in the next five years, based on several risk factors. o An ‘expected loss’ of $396 billion represents the economic loss multiplied by the probability of the event occurring.
The scenario has been designed and calculated by analysing historical pandemics and their socio-economic impacts. The assessment of impact to GDP at each severity level of the scenario is based on a combination of scenario modelling, historical studies, data from COVID-19, and academic expertise. The assessment considers how different regions might manage the initial impacts of a pandemic, and the long-term economic impacts of a pandemic, such as supply chain disruptions and reductions in consumer demand, and the increased government expenditure required for emergency response and health care.
Examples of the types of insurance designed to mitigate these economic impacts include:
o Pandemic insurance and preparedness: Munich Re, in collaboration with International SOS, introduced a product which provides tailored pandemic preparedness advice and financial protection for income reductions from regular business activities; health and safety related extra expenses incurred to comply with regulations; employee retention costs; and liquidity assurance.
o Vaccine insurance: Distributing billions of doses of cold chain vaccines and pharmaceuticals requires a complex and robust transportation programme. Insurance can provide affordable coverage for the transit and storage of health products and prevention programs, helping them to reach all corners of the globe, regardless of the quality of the local infrastructure. In 2020 Lloyd’s Lab alumni Parsyl, partnered with the U.S. International Development Finance Corporation to launch the Global Health Risk Facility through their Lloyd’s “Syndicate in a Box”, providing ‘All Risk’ cargo coverage for the transit and storage of global health products related to COVID-19.
o Event cancellation insurance: Event cancellation covers incurred costs, or loss of profit because of unforeseeable abandonment, postponement, interruption or cancellation of events during a pandemic. In 2021, Lloyd’s partnered with the UK government to launch the £800 million UK Live Events Reinsurance Scheme to provide coverage for the live events sector facilitating the sector’s recovery as lockdown ended.
On 1 July 2020, we published a report entitled Supporting global recovery and resilience for customers and economies: the insurance response to COVID-19, together with a supplementary document, Open source frameworks for systemic risk: Lloyd's Covid19 Response Package - Lloyd's
Previous Lloyd’s Futureset Systemic Risk scenarios can be viewed here: Our scenarios - Lloyd's

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