Lloyd’s has released a new scenario in its series of systemic risk models. The latest scenario explores the potential global economic loss of a hypothetical but plausible human pandemic.

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

Under the scenario, Lloyd’s calculates that the global economy could be exposed to potential losses of US$13.6trn over a five-year period from the threat of a hypothetical human pandemic.

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 as a result.

The scenario was 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, as well as 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.

Insurance designed to mitigate these economic impacts include pandemic insurance and preparedness. One such example is that offered by Munich Re and International SOS, 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.

Vaccine 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 US 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.

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