Pandemics are the stuff of nightmares. But alongside the risk to life, there are significant risks to businesses too.
In the worst-case scenario, the worldwide spread of a serious infectious disease could result in annual economic losses of more than $500 billion as well as pandemic-related deaths of 700,000, according to a study cited by the World Health Organization.
But even a relatively small outbreak could have huge consequences for businesses in certain sectors, namely hospitality, gambling and transportation. As a result, organizations are increasingly seeking solutions for financial protection and risk transfer in the case that a pandemic impacts trading.
“We are seeing a lot of interest in that from certain classes of business,” Duncan Ellis, Marsh’s US property practice leader told Corporate Risk and Insurance.
“There have been some fairly high-profile articles written of late around the hidden dangers of pandemics, which have happened mostly in Asia around SARS or MERS and other types of diseases. But these incidences of pandemics can also play havoc with a client’s balance sheet, especially around bookings,” Ellis said.
Should there be an outbreak of a disease, businesses in the surrounding area will likely be directly impacted. Most at risk are those in sectors where customers could simply choose to avoid the area or activity all together.
“For the gaming or hospitality sector, one of your exposures is a potential pandemic which could all of a sudden cause the number of people coming to visit you to be reduced by an enormous level,” Ellis said.
The prevalence of international travel today only adds fuel to the fire – and means transportation businesses face risks too.
“The way the world works these days… a gambler could be in Macau today and technically speaking could be in Las Vegas tomorrow, for example,” Ellis said. “If they suddenly came down with something and flew on a certain airline, you could imagine how the bookings would go.”
Parametric policies are becoming an increasingly attractive solution for those looking to insure the risks to their business around pandemics. Parametric cover works by using a pre-determined parameter - i.e. a metric or an index – which could see the presence of a pathogen trigger the policy for those insuring pandemic risk.
This year, Marsh launched PathogenRX, a product that provides financial protection to the global operations of US-based businesses affected by an infectious disease outbreak. The policy utilises a parametric trigger provided by epidemic risk modeling specialists Metabiota and capacity from reinsurance giant Munich Re.
Martin South, president of Marsh’s US and Canada Division, described pandemics and epidemics as “not your average risk.”
He added: “They may occur over several months, are often not confined to a specific region, and their unpredictability means they can scale, grow, and become quite costly to a range of businesses - from hotels and restaurants to schools and airlines.”