New strains of bird flu could infect a billion people within weeks and the impact of this on business will depend on preparations that should already be underway, explains James O’Brien.

it has been 40 years since the last pandemic and the scientific consensus is that another is now overdue. Medical experts, including those at the World Health Organization (WHO), confirm this and predict the next pandemic will be a global catastrophe.

The risks in a pandemic are beyond anything encountered by managers in business today. Unlike other natural disasters such as storms, floods and earthquakes, the damage caused by a pandemic is not primarily to property but to people. Organisations can expect absenteeism of 40% or more among their own work force and, equally importantly, a similar number may be absent at their suppliers, disrupting the supply chain.

Businesses that believe the scale of the risk is counterbalanced by its remoteness should reflect on what is happening in the financial sector. A few months ago you could have got very long odds against the heads of some of the world’s largest banks being brought down by salesmen at the bottom end of the mortgage market. All the warning signs were there, and organisations that chose to look the other way are now paying a very high price for this.

The risk to human resources of a pandemic cannot be ignored. Nor can it be transferred in the same way as risks to property. Traditional insurance has a key role to play, but it cannot meet all of a company’s fiduciary and social obligations to employees, customers, investors, suppliers and other stakeholders. To do this, the response to the prospect of a pandemic must include careful planning and establishment of mitigation measures well in advance of the event. So far, too few businesses have taken this on board.

Dangerous complacency

The time which has elapsed since the last pandemic and the scale of the potential impact of future pandemics have fostered a dangerous mix of complacency, denial and confusion. Where the risk is acknowledged, it is often not translated into effective preparations. This is perhaps a result of the “pandemic fatigue” that follows from hearing too much about the enormity of the problem and not enough about the solutions. Some businesses are even leaving global pandemics out of their risk analyses and assessments on the basis that the consequences are “unthinkable”.

Fortunately, there are organisations that have done some concentrated thinking about the nature of possible pandemics and the means to protect a business and its employees from their consequences. These organisations include government departments, international health authorities, insurance companies and consultancies.

Governments and multinational bodies are also pushing ahead with plans to mitigate the impact of a pandemic on the public. The WHO, led by Dr Margaret Chan, has implemented an improved surveillance system that requires governments to cooperate with the WHO and immediately report potential pandemics. In addition, Dr Chan has announced plans to create a global stockpile of avian flu vaccines. She deserves credit for moving national governments and international organisations to prepare urgently for the onset of a pandemic.

Global flu

Avian flu in Asia is identified by the WHO and a new Marsh-Albright Group report as a possible precursor of a pandemic that would spread rapidly through global transportation systems. A highly-virulent strain of bird flu transmitted from human-to-human could reach every continent within two weeks. The dramatic speed of its spread will make this new pandemic unlike anything in the past.

Since the devastating influenza pandemic of 1918-1919 there have been radical advances in trade and transportation. Many businesses now operate globally and international travel has become integral to work and leisure for millions of people. These factors make it near impossible to contain or delay the worldwide spread of a highly infectious disease.

It is, however, possible to prepare for this event and minimise its impact. We know a great deal about how the pandemic will spread, and models of the speed and scale of its impact on business are available. With that knowledge, it is possible to predict specific effects of the illness on the workforce and learn how to apply emerging best practice that will allow organisations to maintain their operations.

Businesses that understand and act on the information now available, in advance of a pandemic, will be able to manage its impact and minimise their losses. Those that do not plan ahead and apply best practice will face unpredictable, unquantifiable risks to the performance and, perhaps, the survival of their business.

Since the 2003 Severe Acute Respiratory Syndrome (SARS) outbreaks in Southeast Asia and Canada, some businesses and governments have begun to implement practical measures to protect business models, employees and other important groups. SARS was not a pandemic, but the disruption and losses it caused were a wake-up call to organisations that had ignored the risks presented by major public health issues.

The SARS-related loss of gross domestic product in Toronto alone was over $1bn. In Asia losses were estimated at $18bn. In a true influenza pandemic, the economic losses would be measured in hundreds of billions of dollars.

The SARS experience confirmed that cooperation across the public and private sectors is a cornerstone of best practice in preparation for a pandemic. This will be a global event that affects everyone. Those not actually infected will feel the severe economic and social impact of the disease. To deal with such a crisis, everyone must work together and play an active part in mitigating the risk.

Be prepared

Governments, corporations, medical services, pharmaceutical suppliers, the insurance industry and specialist consultancies all have vital roles to play in preparations. Based on its extensive research and analysis, the public sector, particularly the WHO, is taking the lead in these concerted efforts.

US state and federal governments have bought 43 million treatment courses of the antiviral, Tamiflu, and aim to raise this figure to 81 million. In the UK, the government undertook “Winter Willow”, a crisis management exercise earlier this year involving 5,000 employees from government, industry and the voluntary sector.

The objective of Winter Willow was to test preparedness by simulating the effects of a flu pandemic in London and other UK cities. It provided a wealth of information on the suitability and effectiveness of existing plans and provisions, and has led to important improvements in procedures.

Chief medical officer for England, Sir Liam Donaldson, said of the exercise: “When a flu pandemic hits the country, the top priority for the Government is to protect the public. The World Health Organization has said that the UK is at the forefront of preparations internationally, but it is always necessary to test our responses and improve them where required.”

Experts have suggested that aggressive measures, centred on the use of antiviral drugs as a preventative measure, might contain a pandemic at its source or at least slow its spread, thus gaining time to put emergency measures in place and augment vaccine supplies.

The priority of governments worldwide is to safeguard critical infrastructure and public services. At the same time, they recognise that all parts of society are interdependent and must all be mobilised in a coordinated effort to meet the pandemic challenge. By protecting employees and their families, businesses will support government in its responsibility to protect the population as a whole.

It is important that the public and private sectors understand what they can expect from the other. For businesses, human capital issues are paramount in the effort to create an efficient and effective plan for responding to a pandemic. Insurance can only cover a relatively small part of the total risk in terms of lost output and damage to financial performance. However, information available from the insurance industry is of great value to an enterprise in assessing workforce impacts, devising strategies and making plans to mitigate the risk.

Strategies to mitigate the risks from a pandemic can include the use of antiviral drugs as a preventative measure, social distancing, employee categorisation, return-to-work programmes, travel policies and alternative work arrangements such as home working. All these will help to reduce loss of productivity within a business. The next step is to account for the fact that other businesses, including suppliers, may not be taking the initiative in pandemic preparations.

Insurers can be valuable partners in this process, helping clients devise effective risk transfer and mitigation strategies. Companies that take full advantage of the information and advice available to them now may be able to minimise their losses and survive in the long term. They will have a competitive edge in a post-pandemic world.

James O’Brien is principal of The Albright Group.