Risk managers on alert as coronavirus pandemic fears grow

Amid speculation that coronavirus may soon be declared a pandemic, the outbreak’s economic impact is beginning to be felt with disruption to supply chains and falling consumer demand in China. Risk managers are advised to pay very close attention.

As the total number of confirmed coronavirus cases in China passes 30,000, questions are being raised about the country’s ability to contain the outbreak. Coronavirus has now spread to 24 countries, while the number of deaths is over 630. That is almost double the 17,200 cases and 361 deaths reported on Monday 3 February.

“The number of deaths from coronavirus is likely to increase over the coming weeks as we are still in the relatively early part of an evolving epidemic,” Dr Simon Worrell, global medical director at Collinson, the medical, security and travel risk management services company, told CRE. “This was to be expected, but now it’s important to pay attention to the case fatality rate. If the number of deaths were to increase relative to the number of positive cases, it could suggest that we are dealing with a more aggressive infection than we thought,” he said.

The most optimistic scenario would see coronavirus confined to China, however many commentators believe that it may now be too late to contain the virus. The World Health Organization declared the situation a Public Health Emergency of International Concern, but has yet to give coronavirus pandemic status. However, a growing number of health professionals believe this is only a matter of time.

“A pandemic is likely to be announced if a significant amount of cases occurs in a site some distance from China – especially if several countries are involved. This has not occurred at present, as only a modest number of infections have occurred outside of China. The risk may not be in cities such as London or Sydney, but in centres where healthcare provision is patchy, contact tracing poor and quarantining slow,” said Dr Worrell.

As the outbreak progresses, risk managers must get up-to-date information to aid decision making, disseminate accurate information to employees and seek support in a timely manner, according to Dr Anthony Renshaw, regional medical director, health consulting at International SOS.

“The best solution is to have expert support that pulls information from a wide range of sources; those providing assistance should have extensive experience in assessing and preparing for potential triggers, to provide actionable advice. These triggers are highly nuanced and we have seen these change quickly,” he said.

“Decisions require consideration not just of medical issues, but geopolitical and security considerations. They cannot be seen in isolation,” he added.

Ideally, an organisation will have pre-prepared and practised pandemic planning for this type of incident, according to Dr Renshaw.

“They will have reviewed their plans and have started to assess how they fit in with the current outbreak. They would have a crisis management team in place to quickly take stock of the situation and have tested systems for contacting and supporting employees in a crisis, wherever they are in the world. To best protect business continuity they will have timely access to information in order to make assessments on travel plans and potential disruption, and be able to quickly enable flexibility in their employees’ itineraries. They have considered a range of actions, based on various triggers, and are agile in their approach,” he said.

But although some organisations are prepared to respond to a pandemic, many are not, according to Julia Graham, deputy chief executive and technical director at Airmic. “Pandemic preparedness is typically understaffed and underbudgeted because this is a low-probability risk,” she said.

Much attention during the outbreak has been focused on preventing deaths and containing the virus, but it is inevitably turning to the potential effects on economies and businesses, said Ms Graham.

“Whether you are in the business of selling hotel rooms, seats on aircraft or delivery of fast foods, or you are dependent on a business model with just-in-time supplies affected by manufacturing plants closing their doors, the potential financial impact is yet to be understood or assessed,” she said.

If the disease is not swiftly brought under control, slower economic growth would exacerbate already weaker fiscal performance in many parts of Asia-Pacific, according to S&P. The ratings agency’s base-case projection is that the coronavirus crisis will stabilise globally in April, with virtually no new transmissions in May. Its worst-case projection would see the virus stop spreading in late May, and optimistically in March.

“This suggests that the peak impact on economic activity across Asia-Pacific will be in the first and second quarters. Growth should stabilise later in 2020 and recover through early 2021 as the temporary effect on activity wanes,” S&P said.

While the human cost of the outbreak has been mounting, economic consequences are now beginning to emerge. Travel restrictions and quarantine measures in place in China are restricting the movements of millions of Chinese, preventing them from working, travelling and carrying out basic economic activities.

The coronavirus is causing disruption to supply chains, especially in the electronics, pharmaceutical and automotive industries. Carmaker Hyundai is suspending production at South Korean factories because of supply chain problems. Other manufacturers – including Tesla, Ford, PSA Peugeot Citroen, Nissan and Honda Motor – have extended factory closures in China.

Sony said the coronavirus could have a major impact on its smartphone image-sensor business if the outbreak continues. Airbus has also extended the planned closure of an assembly plant in China, while consumer electronics group Nintendo said shipments of its Switch games console would be delayed.

The travel, events and tourism industries are also expected to be impacted by coronavirus restrictions. Airlines and airports serving the region are likely to see a significant fall in air traffic and earnings. Hong Kong’s flagship airline Cathay Pacific has asked staff to take three weeks of unpaid leave to help it cope with the impact of the coronavirus.

The cruise-ship industry has also been affected. More than 3,700 passengers onboard the Diamond Princess were placed under quarantine in Japan. Some 60 passengers have since tested positive for coronavirus.

Some 1,800 passengers onboard a cruise ship docked in Hong Kong are also being tested for the virus after a number passengers showed symptoms of coronavirus.

In China, lockdowns and quarantines have depressed air and rail passenger flows, and have closed property sales offices, said S&P. “This supports our view that the economic hit will be felt most keenly in household-related spending,” it stated in a report.