7. Pandemic Risk/Health Crises
In Australia, where strict preventive measures effectively contained the initial spread of COVID-19, allowing the country to remain relatively free and open, the Delta variant, which ravaged India in early 2021, easily penetrated the island nation’s defenses.
In mid-June 2021, an unvaccinated airport driver, who was in his 60s, became infected when he transported international airline crews from Sydney Airport to their hotel rooms. Barely a month after the driver tested positive for COVID-19, Sydney, Australia’s most populous city, faced an outbreak.
At time of writing, more than half of Australia's population is in lockdown. Sydney extended its two-month-long restrictions from June to the end of September. The neighboring country of New Zealand, which had been seen as a success story, was also forced to implement a nationwide lockdown after uncovering 30 active new cases.
Similarly, the new variant set back the success of COVID-19 control measures in Southeast Asia. With its population of more than 655 million people, the region quickly became the next hot spot. The average number of confirmed daily new cases there had increased to nearly 30,000 by the end of June. The resurgence has caused an uptick in hospitalizations and, sadly, deaths, especially in regions where vaccination rates are lagging.
The COVID-19 pandemic is not a typical crisis that progresses in a linear way to conclusion. Rather, it comes in multiple waves of infection that require organizations to pivot between reacting, responding, recovering and reshaping. It is an event driven by a host of as-yet-unknown factors and hidden interconnectivities that combine to amplify the pandemic’s impacts and ripple effects.
As the virus continues to mutate and spread, rendering vaccines less effective, the stakes rise even higher. Fear and anxiety, together with confusing and conflicting information over COVID-19 and its impact, are casting a dark shadow over businesses that participated in Aon’s 2021 survey. As expected, pandemic risk and health crisis has entered the top 10 risk list for the first time, springing from number 60 in the previous survey to number seven in the current one.
Reported loss of income from the pandemic in the past 12 months has risen from 2 percent in 2019 to 79 percent in 2021. The good news is that reported readiness has also risen, from 45 percent in 2019 to 70 percent in 2021.
Not surprisingly, the hospitality, travel and leisure sectors ranked pandemic risk at number two. The existing travel restrictions and new rounds of lockdowns continue to stunt the sector’s recovery.
Survey participants who manage human resources also rated the pandemic as a number two threat. The pandemic has disrupted organizations, forcing HR managers to reconsider their roles as companies have switched to a remote-work model at a rate and scale they've never experienced before. Not only do HR professionals have to advise management regarding best health and safety practices, they also have to handle employee layoffs and furloughs.
Regionally, pandemic risk and health crisis occupies top spots in the current and future top 10 risk list for all regions except North America.
Surveyed businesses in North America ranked it at number 12 and remain undecided about its future ranking. The situation can be attributed to the rising optimism in the second quarter of 2021, when new infections were on an overall decline and more people were being fully vaccinated. An online ABC News/Ipsos poll in May 2021 found that 64 percent of Americans said they were optimistic about the next year. However, as of mid-August, when COVID-19 cases once again reached 133,000 per day, the University of Michigan’s Consumer Sentiment Index plunged to its lowest level in a decade.
In Latin America, the risk is ranked at number four. At the time Aon’s survey was conducted, most of Latin America and most Caribbean countries were still battling with the rapid rise of new infections, and vaccination was lagging badly — only one in 10 people had been fully vaccinated. The same is true with the Middle East and Africa, which ranks it at number 10.
It’s interesting to note that for more than a decade, pandemic risk and health crisis lay buried at the bottom of the risk list in Aon’s various studies despite the constant threats of bird flu and the SARS, MERS, Ebola and Zika viruses. Having foreseen its potentially devastating impact, Aon has repeatedly called out the risk in various reports, characterizing it as an underrated threat.
In 2013, Aon polled more than 100 captive directors for our report Underrated Threats? Research Into the Evolving World of Risk. In the survey, we posed a question to participants: With the dramatic increase in international travel, from 683 million journeys in 2000 to over 1 billion journeys in 2011, and with the growing resistance to antibiotics in the developed world, do you think that pandemic risk and health crisis, ranked at number 44, is underrated?
Much to our surprise, respondents seemed undecided on this ranking, with only 39 percent saying it was underrated. As solutions advisors, we held a completely different view from that of our clients. The COVID-19 pandemic, the longest lasting in memory, has taught us a valuable lesson.
The current pandemic is testing every business leader in new and unknown ways. Any playbook for a linear crisis event has become obsolete. The world as we know it is being completely reshaped. No country or company will simply bounce back or rebound to the way it was before. Consumer behaviors are changing, supply chains are being rewritten, institutions are shuttering, business models are being fundamentally reshaped and expectations of governments are shifting. The question remains whether this reshaping will lead to more resilient business models.
For the insurance industry, which did not contribute materially to the mitigation of volatility in this space, this crisis has highlighted many gaps in our understanding, testing, resourcing and contingency planning for these types of risks. So far, solutions are lacking, and many parts of the 21st-century commercial landscape are underserved.
In a recent Aon survey, more than half of companies report that they expect COVID-19 will continue to impact their business a year from now, and nearly 70 percent say the pandemic has exposed new risks and vulnerabilities that would require a significant change in how businesses should think about the future. All of this means that businesses need to implement a new response framework that enables them to confidently make better business decisions in this complex and volatile time. This will not be the last challenge, but as various forces converge in this moment, we are witnessing a fundamental reordering of priorities on a global scale.
When it comes to managing a pandemic or, indeed, any other crisis, Aon, in conjunction with its research partner, has identified four activities that contribute to corporate resilience:
- Leadership: Act with urgency and transparency. Acknowledging the unknown helps to provide a sense of reassurance and common purpose.
- Communication: Crises require leaders to build trust with their listeners through accurate, honest and frequent communication.
- Action: Leaders must assess the information available to execute new business models, operating modes, communication channels and other processes, creating new structures and adjusting as needed.
- Preparation: Organizations must create workforces prepared to withstand future disruptions and stresses. The path to getting there requires using data intelligently to balance people risk with people spend while also empowering workforce agility and resilience.
While these actions focus on post-event rehabilitation, “pre-habilitation” requires us to better understand this exposure qualitatively and quantitatively and work as an industry to provide both insights about risk prevention (building of resilient business models and resilient workforces) and insurance solutions for all business sectors and segments to offset potential volatility.