A potential future human pandemic could cause $13.6 tn in global economic losses over five years, according to a systemic risk scenario from Lloyd’s.
The analysis models economic impacts across three severity levels, ranging from $7.3 tn in the least severe case to $41.7 tn in the most extreme. This translates to a reduction in global GDP of 1.1% to 6.4%.
The analysis, produced with the Cambridge Center for Risk Studies, explores plausible but hypothetical systemic risk scenarios. These include other risks like cyberattacks, extreme weather causing food and water shocks, economic stagnation, and geopolitical conflict.
The interactive model allows users to view economic and insurance impacts for 107 countries under three severity levels: major, severe, and extreme.
Projected economic impact from a pandemic
The projected economic impact from a pandemic would stem from local lockdowns and global travel restrictions. The transport sector, which accounts for over 10% of global GDP, would face significant economic strain under prolonged travel restrictions. However, the model does not include insured losses.
Systemic risks are defined as low-probability but high-impact events that can disrupt multiple sectors or national economies simultaneously.
They often affect billions of people worldwide. The Lloyd’s model uses global GDP as the key metric to quantify economic loss, with the probability-weighted average impact of a future pandemic set at $13.6 tn over five years.
Insurance Solutions for Pandemic Risks
Lloyd’s highlighted the insurance industry’s role in addressing pandemic-related risks. Insurers have developed products for coverage of new outbreaks of infectious diseases, as well as insurance for the development, transit, and storage of vaccines. Other offerings include protection against event cancellations due to a pandemic.
For example, Munich Re, in partnership with International SOS, introduced a product offering tailored pandemic preparedness advice and financial protection.
This coverage addresses income reductions, health-related expenses, employee retention costs, and liquidity assurance.
Vaccine insurance is also crucial in mitigating supply chain risks, especially as global vaccine distribution requires a complex logistics network. Insurance coverage ensures the safe transport and storage of vaccines and health products, regardless of infrastructure quality in the receiving region.
Lloyd’s noted that in 2020, Parsyl, a graduate of the Lloyd’s Lab, launched the Global Health Risk Facility.
This initiative, in partnership with the U.S. International Development Finance Corp., offered all-risk cargo coverage for the transit and storage of COVID-19 health products through a Lloyd’s syndicate-in-a-box.
Event Cancellation Coverage
The economic impact of event cancellations during a pandemic has prompted the creation of tailored insurance products. Event cancellation insurance covers costs or lost profits from the abandonment, postponement, or cancellation of events due to unforeseen circumstances.
In 2021, Lloyd’s partnered with the U.K. government to launch the $1 bn U.K. Live Events Reinsurance Scheme. This program supported the live events sector’s recovery as pandemic lockdowns ended.
Lloyd’s systemic risk model highlights the critical role of insurance in mitigating the financial impacts of future pandemics. The projected $13.6 tn global loss over five years underscores the need for preparedness and insurance-backed risk transfer solutions.
FAQ
Lloyd’s pandemic risk model projects a potential global economic loss of $13.6 tn over five years. The estimate is a probability-weighted average of three scenarios, with losses ranging from $7.3 tn (least severe) to $41.7 tn (most severe), corresponding to a global GDP reduction of 1.1% to 6.4%.
Lloyd’s collaborated with the Cambridge Center for Risk Studies to model three levels of pandemic severity. The model factors in economic disruption from lockdowns, travel restrictions, and industry shutdowns, using global GDP as the primary measure of loss. The probability-weighted average loss is set at $13.6 tn over five years.
The transportation sector, which accounts for over 10% of global GDP, faces the most significant impact. Prolonged travel restrictions disrupt international trade, tourism, and logistics, leading to substantial economic losses. Other sectors facing disruptions include supply chains, manufacturing, and live event industries.
No, Lloyd’s model does not include potential insured losses. The projections focus on the overall economic impact on global GDP. However, the report highlights the role of insurance in mitigating pandemic risks, such as coverage for event cancellations, vaccine transportation, and business interruption.
The insurance industry offers products that provide financial protection against pandemic-related disruptions. Examples include pandemic insurance, event cancellation coverage, and vaccine insurance. Insurance also supports the development, transport, and storage of vaccines, as seen with the Global Health Risk Facility launched by Parsyl and the U.S. International Development Finance Corp.
The U.K. Live Events Reinsurance Scheme, launched by Lloyd’s in 2021 with the U.K. government, is a $1.02 bn program to provide coverage for live event cancellations. It was designed to support the live events sector’s recovery following pandemic-related lockdowns. The scheme offers protection for costs and lost profits from cancellations, interruptions, or postponements of events.
Systemic risks are low-probability, high-impact events that disrupt multiple sectors or economies simultaneously. Pandemics are considered systemic risks due to their ability to affect billions of people worldwide. Other systemic risks explored in Lloyd’s research include cyberattacks, extreme weather events, economic stagnation, and geopolitical conflicts.
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AUTHOR: David Pilla – Editor/reporter, marketing and communications specialist BestWire. Edited by Yana Keller
