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One of the things not generally talked about during pandemic discussions is the impact a severe flu pandemic will have on financial markets such as life insurance.  I mentioned this lack of discussion when I recently lectured to senior employees of the Florida Department of Financial Services, or DFS.  DFS is run by a very impressive woman, Alex Sink.  Ms. Sink has run a banking empire (Bank of America) and has also served on numerous private sector boards and commissions.  She is also the only elected statewide Democrat on Florida's elected Cabinet, so she is unique in her ability to get her message of fiscal discipline to voters of all persuasions.

Anyway, CFO Sink required all her senior staff to listen as I gave my then-new "First pandemic of the information age" presentation, giving new meaning to the axiom "Death by Powerpoint."   Her senior managers and policy experts came to terms with the sheer volume of human suffering and the resultant stress that a sudden spike in death claims would have upon the life insurance industry, not to mention a downturn in tax receipts.  The actuarials in the audience quickly performed their unique calculus and their faces went pale with concern about the solvency of some life insurance companies who would hypothetically be paying death claims on young lives whose premiums had not been given time to prosper within the Law of Large Numbers that is the industry's hallmark.

Add to that growing list of concerned organizations the venerable Lloyd's of London.  Lloyd's, whose very name is synonomous with global best practices in the insurance and reinsurance fields, recently conducted a seminar on pandemic planning. It is one thing to read bloggers' diatribes about pandemic preparedness, including my own.  It is another thing to hear our government's top leaders -- including the President himself -- speaking on the need for preparedness.  But for some, confirmation only comes whan a prestiege firm such as Lloyd's comes out and says, "Do this."

For those people, consider yourself warned.  Lloyd's is taking the approach that a pandemic is an event with a very close beginning date. An extract taken from the Lloyd's press release:

Prepared for a pandemic?

2 May 2008

A pandemic ‘flu that causes massive disruption to economies around the world is inevitable and all businesses must prepare for it now. That was the stark message to emerge from a recent high level seminar co-organised by Lloyd’s and XL.

In a series of sobering presentations, business continuity and risk management experts explained how insurers and their customers could be affected by a pandemic and what they can do to mitigate the fall-out from a nightmare scenario.

In risk management terms, a pandemic is unlike any other natural or manmade disaster that businesses routinely prepare for. A ‘flu pandemic is not a sudden, short lived event like a terrorist attack or industrial explosion that destroys infrastructure in a localised area. It could last for months.

“Nobody knows when this will happen, so it is a challenge to make it real to people,” Professor Lindsey Davies, national director of pandemic influenza preparedness at the Department of Health admitted. “But it will happen.”
When the UK’s Financial Services Authority simulated the effect of a pandemic ‘flu on the City it assumed an absence rate of 49%. Richard Maddison, deputy head of business continuity risks at the FSA, said that the exercise revealed that from the outset participants’ were not fully aware of the impact a pandemic would have on their suppliers and that there was uncertainty about how a pandemic will spread. “Plans and HR policies need amending,” he warned.

All the evidence points to a lack of preparedness among business. A YouGov survey last year found that over three quarters of companies have inadequate plans; around a third have no strategy at all.

Drawing a pandemic timeline, the FSA’s exercise showed how institutions will be challenged as a pandemic quickly develops momentum. Chillingly, by week five of the simulation, companies were extending HR policies to include emergency financial support, accommodation and death in service benefits to employees.

The insurance industry will potentially have to cope with an variety of claims , while it is still reeling from its own business continuity problems, Trevor Maynard, emerging risk manager at Lloyd’s, said. Life and health programmes will be directly impacted but less immediately obvious losses could pile up as businesses grind to a halt, from credit insurance to event cancellation.

When the UK’s Financial Services Authority simulated the effect of a pandemic ‘flu on the City it assumed an absence rate of 49%. Richard Maddison, deputy head of business continuity risks at the FSA, said that the exercise revealed that from the outset participants’ were not fully aware of the impact a pandemic would have on their suppliers and that there was uncertainty about how a pandemic will spread. “Plans and HR policies need amending,” he warned. All the evidence points to a lack of preparedness among business. A YouGov survey last year found that over three quarters of companies have inadequate plans; around a third have no strategy at all. Drawing a pandemic timeline, the FSA’s exercise showed how institutions will be challenged as a pandemic quickly develops momentum. Chillingly, by week five of the simulation, companies were extending HR policies to include emergency financial support, accommodation and death in service benefits to employees. The insurance industry will potentially have to cope with an variety of claims , while it is still reeling from its own business continuity problems, Trevor Maynard, emerging risk manager at Lloyd’s, said. Life and health programmes will be directly impacted but less immediately obvious losses could pile up as businesses grind to a halt, from credit insurance to event cancellation.

http://www.lloyds.com/News_Centre/Features_from_Lloyds/Prepared_for_a_pandemic_02052008.htm

There is more, but I will let you read the release.  I do want to post Lloyd's Top Ten things to remember in a pandemic:

Top 10 tips for businesses to cope with a pandemic

• Although the emergency services are taking pandemic preparedness very seriously continuity plans should consider the impact of a reduced level of service.

• Educate your staff in advance on the hygiene and quarantine procedures they may need to take.

• Identify who your key personnel are and explore cross training to help cope with absent staff.

• Check that your suppliers are as well prepared as you are for a pandemic.

• Decide on corporate priorities and the key services that must be maintained.

• Exercise contingency plans against the timeline of a pandemic.

• Fully understand how telecommuting can serve the business and where the weak points are.

• Evaluate your requirements for bandwidth at your gateway and consider buying extra now.

• Be prepared for subsequent waves and plan for the recovery phase.

• Expect a more fluid job market as employees react to how they were treated by employers during the pandemic.

This is among the best advice I have ever seen for pandemic preparedness.  Of course the Devil is always in the details, but these tips are simple, straightforward and can apply equally to the public and private sectors.  And note that final bullet:  If your business fails to properly consider the role that pandemic planning and response took in their own lives, do not expect to retain them.  If you care not a fig for your employees enough to prepare them for pandemic flu, they will repay your lack of care by leaving you.  Hey, that rhymes!

Hat-tip to Flutrackers poster Shiloh.