The coronavirus COVID-19 has gained a great deal of media attention as of late, and AIR has published content surrounding the transmissibility of the virus as well as estimates of cases and deaths based on projections from the AIR Pandemic Model. It’s important to also note the impact of the virus on the disruption of business and its implications.
Global Supply Chain Risk
Since World War II, international trade has grown at a faster rate than in any previous era. Exports are now more than 4,000 times larger than at the beginning of the last century and global trade represents more than 50% of the value of total output. China’s spectacular economic growth may have slowed in recent years, but it has nevertheless become the world’s second largest economy. According to the World Bank, in 2018, China’s total exports were valued at almost USD 2.5 trillion.
With the globalization of supply chains comes an increased likelihood of companies being exposed to natural and man-made risks, even when the underlying event manifests on another continent. Because the import and export of goods are such a significant part of every country’s economy, the spread of a virus can significantly threaten not only the health of residents, but also the economy.
Although China, and the Wuhan district in particular, has a wide variety of exports, some of the most significant are components and supplies such as semiconductors, automobile parts, and generic pharmaceuticals. Companies that rely on these may no longer be able to meet demand as these exports are delayed.
A growing list of retailers are unable to keep up with demand for these components and supplies sourced from China and are experiencing declining sales as their products are not being delivered. Unable to meet the standards defined in their Service Level Agreements (SLA), manufacturers in China are at risk for legal action. Some companies in China have attempted to declare force majeure—unforeseeable circumstances that prevent a company from being able to fulfill a contract—which is most often declared as a result of natural catastrophes, strikes, or terrorist attacks.
Travel and Healthcare Risk
There are other liability implications surrounding travel disruption that can be directly linked to coronavirus. Major airlines such as American, United, and Delta canceled flights and some companies halted travel to and/or from the impacted regions before President Trump’s travel ban was announced. With the significant amount of global travel that takes place today, this can also lead to business interruption. However, not all airlines responded in this manner. Carriers such as Air China were still offering flights from the U.S. to mainland China, for example. The potential risk of virus exposure to passengers could lead to potential litigation against these airlines.
Healthcare companies and hospitals may also have potential liability if they don’t sufficiently fulfill their duty of care to protect staff, patients, and healthcare workers. The spread of coronavirus from person to person results from close exposure to an infected person. AIR has estimated a relatively high R0 value, which indicates how contagious the disease is. The Centers for Disease Control and Prevention (CDC) has published guidelines for healthcare personnel to assist with the assessment of risk, monitoring, and work restriction decisions. If hospitals do not successfully implement the practices outlined by the CDC, they could potentially be liable for their workers who contract the disease, or other patients who are in the hospital for reasons unrelated to the coronavirus and then contract the disease. It was recently made public that the virus has spread to more than 1,700 healthcare professionals in China.
How to Account for Potential Losses
The coronavirus COVID-19 has the potential to directly or indirectly initiate significant litigation with potential defendants across multiple industries. Understanding this casualty risk is easy with Arium’s scenario-based loss assessment framework. With Arium, you can analyze and quantify your exposure to events directly and indirectly related to the coronavirus such as:
- Potential product liability in industries with heavily impacted supply chains such as auto, semiconductors, and retail
- An increased frequency of financial events such as bankruptcies due to the business interruption impacts of coronavirus
- Systemic medical malpractice lawsuits due to lack of experience with coronavirus-specific safety protocols in hospitals
While many of these scenarios are already available in Arium, you also have the ability to build your own custom scenarios, reflecting your organization’s proprietary view of risk.