With the ease of global travel, insurers are asking how can they price the risk of a pandemic, according to Lloyd’s Chairman Lord Levene.

“One of the main carriers of systemic risk is, simply, people travelling from country to country,” he told a Lloyd’s seminar in Singapore.

“This new proximity to each other makes us more vulnerable to pandemics.”

Lord Levene says the potential losses to businesses from a pandemic are huge.

“The SARS outbreak in 2002 is a perfect example of how pandemics affect business,” he said. “There were fears that Cathay Pacific [Airways] would have to ground its entire fleet, passenger numbers fell by 75%, staff were asked to take unpaid leave and its shares dropped by 7%.

“The cost of the SARS pandemic on the Asia-Pacific region was estimated to be $US40 billion ($39.8 billion).”

Lord Levene says events such as the SARS pandemic and global trade has meant risk is now also global. 

“Distance is no longer nature’s insurance policy which insulates you from events happening on the other side of the world,” he said.

He says as Asian companies expand to become multinationals, further risks will develop.

“It is not only their exposure to risk which grows, but also their ability to act as a carrier of systemic risk,” he said.

“This requires very robust risk management techniques, as we need to know what is happening in the countries where we build factories, invest capital or sell services.”