Tag Archives: coronavirus

The Insurance Implications of the Coronavirus “Catastrophe”

Robert Muir-Wood, Chief Risk Officer, RMS

Tim Edwards, Regional Director – Head of Catastrophe Analytics Globals, Willis Re

This article was originally published in Insurance Day

The economic impact of COVID-19 (coronavirus) is clearly going to be significant, with global growth in gross domestic product (GDP) for 2020 now expected to be only half that of the three percent originally anticipated, at best. Relative to the US$86.5 trillion global GDP for 2019, that equates to around US$1.3 trillion dollars of lost economic activity. This is twenty-five times the economic loss estimated from the SARS outbreak in 2002-3.

The losses from COVID-19 will emerge from many facets of the economy.   

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Risk and COVID-19

Perhaps the most difficult and unfamiliar feature of the coronavirus pandemic is how the associated risk is rising rapidly through time. We are all used to managing our response to risks that are relatively stable, such as street crime or dangerous driving. The risk from the COVID-19 is different.

It is going to be with us for a while, and in many countries its rise looks exponential. This steep, geometric progression is completely new to most of us. However, those who have lived through hyperinflation in Zimbabwe or Venezuela know what rapid and out-of-control feels like. In several countries, rates of incidence and of mortality have been doubling every three days: imagine fighting an army that on day three has doubled in size and after a fortnight is thirty-two times bigger than on day one.

So how do we manage our own personal risks through this extraordinary period, and how should companies help make risk-based decisions on behalf of their employees?

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Containment of COVID-19 Is the Best-Case Scenario

Dr. Tedros Adhonom Ghebreyesus, director-general of the World Health Organization (WHO), has insisted that containment of COVID-19 is feasible, and must remain the top priority for all countries, but that there is not a one-size-fits-all approach. This was reiterated by Dr. Gaudenz Silberschmidt, director, health and multilateral partnerships – external relations at the WHO, who gave a keynote talk at the ReFocus 2020 conference in Las Vegas on March 3. This is the leading annual meeting for senior figures in the life insurance industry.

After his keynote, as an expert on pandemic risk modeling, I participated in a panel together with Dr. Silberschmidt and others, on the benefits of prevention. All the panelists, including myself, expressed support for this focus on containment, and the overall approach the WHO is taking in dealing with the COVID-19 outbreak, especially in Iran where the WHO has sent an urgent mission.

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Economic Impact of COVID-19 Will Be Far Worse than SARS

Imagine being seated for eleven hours on a plane next to a passenger wearing an anti-viral face mask, and with a hand sanitizer clipped to his back-pack, which he dipped into for cough relief lozenges. This was my stressful experience last week; and it could be a common anxiety in the months ahead.  IATA has estimated a revenue loss of about USD $30 billion this year, most of which would be in the Asia-Pacific region. But this was assuming that Covid-19 would play out like SARS in 2003, which caused a sharp decline for six months, followed by a quick rebound.  Many business sectors other than aviation are likewise hoping for recovery after the summer. The fate of the Tokyo Olympics depends on recovery by July.

SARS was a very severe disease. Most patients developed pneumonia, and about 10% died. According to China CDC, about 5% of Covid-19 patients have critical diseases including respiratory failure, septic shock and multiorgan failure.  In about 14% of cases, the virus causes severe diseases including pneumonia and shortness of breath. But about 80% of patients have a mild form of disease. Reassuring as this may sound, the mildness of most cases makes Covid-19 a far greater global menace than SARS. Those infected with SARS were not infectious during the incubation period.  This greatly facilitated the task of tracking infected contacts of SARS cases; surveillance could focus on those contacts who developed symptoms.

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The Coronavirus Outbreak: Part Two – Self-Isolation and Quarantine

The village of Eyam in Derbyshire, central England, was unlucky to discover that the pandemic, then raging 150 miles (226 kilometers) to the south in London, had arrived on its doorstep.  

The pandemic was the plague – the year was 1665. The disease had reached Eyam through the delivery of flea-ridden cloth from London to the local tailor, who would then made clothes for the villagers. The fleas carried the plague bacterium and the recipient of the cloth was the first to die.

Within three months another 41 villagers had perished. By spring 1666 a newly appointed rector proposed that, for the sake of other plague-free towns in the Peak District region, the village should self-isolate. A local Earl offered to guarantee food for the town (supplied on a rock at the edge of the village, paid with coins immersed in vinegar – see location below). In June 1666 the villagers reluctantly agreed. Over the summer the plague returned with a vengeance and there were five or six deaths each day. Eventually one third of the population died. But the nearby towns stayed plague free.

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The Coronavirus Outbreak: Part One – Modeling “Spotting”

Since 2017, in modeling the threat from wildfire on communities in California, the significant new RMS innovation has been in capturing the process of “spotting” (i.e. identifying new outbreaks of fire far from the fire-front). Strong dry winds bring swarms of glowing embers from a raging wildland fire, which can travel long distances. Should these embers settle on shingle roofs, wooden patios or a leaf-filled plastic gutter, a fire will start. Unchecked, the fire will consume a house.

In high-density housing suburbs, wind-driven fire can spread from building to building and consume a whole neighborhood – as happened in the city of Santa Rosa in 2017. And the only way to stop an outbreak is to intervene: to extinguish each ember-ignited fire before it can spread.

Modeling ember ignitions requires sampling the speed and direction of the wind and also anticipating what proportion of fire-starts get extinguished before they can spread. Still it only takes one unchecked fire to burn down the town.

This same process, in modeling “spotting”, is key to anticipating the spread of the new coronavirus into western Europe and North America.  

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Coronavirus Event Cancellation Risk

In the spring of 2003, RMS pioneered quantitative event cancellation risk analysis with a study for FIFA in respect of the 2006 World Cup in Germany. As it happened, SARS was first reported outside China in February 2003, and was rampant throughout the duration of the risk analysis. At that time in London, as in Asia, sensible precautions such as avoiding busy Chinese restaurants was a rational defensive measure. Since the World Cup was scheduled for three years later – the summer of 2006, SARS was not considered as a cancellation risk. Terrorism was the primary risk to which investors in Golden Goal Finance Ltd were exposed.

Thanks to intensive global contact-tracing, and the need for an infected person to be symptomatic before being contagious, the World Health Organization was able to declare the SARS outbreak contained in July 2003. Nearly seventeen years after SARS, a novel coronavirus related to SARS appeared in China over a month ago in December 2019. Whereas SARS had a case fatality rate of about ten percent, the novel coronavirus (2019-nCoV) is more benign. The case fatality rate is currently estimated at just a couple percent. But even this level is highly disruptive, and all risk stakeholders will be anxious over the number of months before 2019-nCoV is contained.

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Clues on the Coronavirus Contagion

Epidemiologists are disease detectives. The investigative insights of a forensic epidemiologist are exemplified by Sherlock Holmes, whose creator, Arthur Conan Doyle, qualified as a medical doctor in Edinburgh. With limited information, some of which may be dubious and misleading, epidemiologists search for hidden clues as to the cause of a disease and its manner of population spread and use statistical modeling techniques to estimate the degree of disease contagion and the number of cases of infection. 

Prof. Neil Ferguson heads the World Health Organization (WHO) Collaborating Center for Infectious Disease Modeling at Imperial College London. His search for scientific understanding using sparse observational data dates back to his theoretical physics PhD at Oxford. Like others trained in theoretical physics, Prof. Ferguson is not shy in making mathematical forecasts that may be at odds with partial data of suspect reliability. Misreporting blighted the Chinese response to the 2002 SARS outbreak.

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Spread of the New Coronavirus in the Year of the Rat

When the Middle East Respiratory Syndrome (MERS) was first identified as a coronavirus in 2012, the case fatality rate was very high at 35 percent; but thankfully there was very low human-to-human transmission. Such transmission happened in healthcare settings, or to a much lesser extent in households where people caring for an infected person had close contact. 

Camels were identified as a “reservoir host” for MERS, with infection primarily caused through direct contact with camel fluids. As evidence of very low human-to-human transmission, there were no MERS cases reported in either the 2012 or 2013 Hajj pilgrimage to Mecca, although an Indonesian couple may have caught MERS in the 2014 Hajj.

In China, there is an even larger annual migration tied to the lunar calendar – as the lunar New Year starts on Saturday, January 25. This is normally a time of happiness and celebration during family reunions. This year, there will be fear and foreboding over the new coronavirus, which emerged in December from a seafood market in Wuhan, Central China. On January 21, Chinese health authorities confirmed human-to-human transmission of the coronavirus. Fortunately, the case fatality rate seems to be quite low, just a few percent.

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New Lethal Coronavirus In China

In this the centennial year of the great 1918 pandemic, I was invited to speak at a special symposium on emerging infectious diseases at the renowned Pasteur Institute in Paris. One presentation that was both fascinating and alarming was on viruses in fish. I haven’t eaten raw fish since. When I heard that, in mid-December, a new form of pneumonia had struck a seafood market in Wuhan, central China, it seemed like a new fish disease affecting humans might have finally emerged. It turns out that the seafood market at the center of the outbreak also sold live animals and meat from wildlife such as snakes and marmots, and a wildlife primary infection source is most probable.

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