Businesses need to be aware how much damage the ‘fear multiplier’ from deadly diseases such as Ebola and emerging infectious diseases could cause them, the Cambridge Centre for Risk Studies warns.

This is among the conclusions of its recently published Ebola contingency scenario in which has modelled the possible economic impact of a pessimistic scenario of several hundred individual cases of Ebola reaching the US and Europe before the current outbreak in West Africa dissipates.

“The fear of catching the deadly disease causes more economic damage than the direct consequences of illness and treatment measures,” says Dr Scott Kelly, director of the centre’s external advisory board. “If a new disease is in circulation, then as a precaution people will not take a business trip or a holiday to a region they think might increase their chances of being infected, they won’t shop in places they think might expose them and they won’t go to work if they perceive that this poses a personal risk.”

Potential consequences include lower economic output as a result of reduced consumer spending, higher interest rates and increased unemployment. Overall, there could be a loss of as much as 1.1% of global GDP or US$770 billion in one year, the model indicates.

“The more virulent the disease, the higher the fear factor. Following a single death in Dallas, Texas, of a Liberian patient, city parents kept their children from going to school, and hotels, restaurants and bars experienced a noticeable reduction in trade,” he adds.

Stress testing using scenarios is a method businesses of all types can use for contingency planning to deal with the risks to business continuity that would result from disease outbreaks, such as workforce absences, supply chain disruptions, and a fall or surge in demand depending on the industry.

The Cambridge Centre for Risk Studies has developed several stress test scenarios, including a hypothetical influenza pandemic, to explore how extreme events might play out in terms of the potential consequences on the global economy and effects on business and insurance. The influenza pandemic study reveals that the global economy could lose between US$7 trillion and US$17 trillion, depending on the effectiveness of the public health response.

For the insurance industry, in addition to life, heath, and personal injury coverages, widespread outbreaks of infectious disease cause substantial claims in lines of business such as liability, contingent business interruption, trade credit and event cancellation covers. In a pandemic, underwriting losses could be compounded by an impact on an insurer’s investment portfolio, according to Scott Kelly.

Dr Kelly points out that the reaction to Ebola has similarities with the previous high virulence, low infection epidemic, SARS, in 2002. It killed 775 people worldwide having infected 8000, not an enormous number globally. The economies of the main countries where it was prevalent during the outbreak, China, Hong Kong, Taiwan, and Singapore, suffered significantly, however.

A tourist in Hong Kong carried SARS back to Canada and a small outbreak there in March 2003 killed 44 people. Hotels lost many millions of dollars and one-third of the Toronto tourism workforce was laid off. The fear multiplier cost the Canadian economy 0.6% of its GDP in one quarter.

“The threat of new diseases in distant populations may seem of little relevance to a global business in an era of medical miracles, but our interconnectivity and human nature’s fear factor is strong enough to make these outbreaks a genuine risk and potentially cause significant economic disruption. All businesses should have risk management processes in place for events of this type,” Dr Kelly concludes.

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