On Sunday, Amazon announced that it is withdrawing from exhibiting and participating in Barcelona’s Mobile World Congress 2020. While scheduled to host a full-day conference track on the first day of the event, Amazon’s cloud computing arm, AWS, joins Korea’s LG Electronics, Swedish equipment maker Ericsson, and US chipmaker Nvidia as the latest organization to ensure the safety of its employees in the face of the growing public health risks surrounding the coronavirus.
In my years at AIG and AXA, I was heavily involved with operational risk committees, business continuity planning, and disaster recovery planning. The scenario of a “pandemic” was always considered in our simulations and procedures. When the SARS epidemic broke out not long after the turn of the century, the idea that a pandemic could occur, disrupting IT support and business operations, became all too real.
What We Know (and Don’t Know)
Now, in 2020, we are faced with a new coronavirus recently named COVID-19. At the time of writing the number of confirmed cases has exceeded 40,000 in China, and the global reported death toll is over 900. For context, the 2003 SARS outbreak killed 774 people around the world. The likelihood of this becoming a pandemic is high—and it’s getting higher by the day.
The mortality rate is being measured around 2% right now, but that may be overstated since mild infections are not being reported. We know people are dying at an ever-increasing rate; while incidences of the virus have mostly been reported in China, it has spread to 26 other countries via airplanes, boats, or land travel.
A Horizontal Impact on Business Verticals
As the government of China battles the threat of a pandemic, with lockdowns on entire provinces, companies that manufacture components in China such as Apple, Starbucks, P&G, GM, Tesla, and others are being impacted. Google’s parent company, Alphabet, is temporarily shutting all of its offices in China, Hong Kong, and Taiwan and has restricted employees from flying to mainland China and Hong Kong. Toyota extended the shutdown of its plants in China (although production is expected to resume in the coming weeks), while Fiat Chrysler may close a plant in Europe while it is missing key parts from Chinese suppliers.
Besides manufacturing and technology, China’s banks are beginning to strain under the burden of perpetuating social stability. The “state banks to ensure that small businesses are paying no more than 1.6% with government subsidy.” While cheaper financing may help the broader economy, banks are barely making enough money to cover their cost of funding after accounting for default risks—and that’s only accounting for the domestic strain, not the impact on multi-national businesses tied to the world’s largest banking system.
Questions to Reduce Risk: Answers to Be Determined
Insurance carriers should have a number of concerns, from both a business and technology perspective:
- If the virus becomes as bad in US cities such as NYC, Chicago, and San Francisco as it is in Wuhan, China, general freedom of movement and the ability for people to get to work will be inhibited. Can everyone work from home? Remember, Hubei province, where Wuhan is located and where more than 50 million people live, has been quarantined.
- What happens if a large number of people with key subject matter expertise—either in IT, business products, underwriting, or claims—get sick? Do they have sufficient backup people?
- If BPO or IT outsourcing is deployed, what if those countries are severely impacted? Can the outsourcers move where systems are supported or business processes are performed?
- How will major IT programs of work move forward if key people are impacted by the virus? Do major programs have contingency plans?
- For life insurers, could increased death claims overwhelm the technology and processes in place?
- Is there legal liability for not protecting employees?
- Pandemics often reoccur seasonally. It may wane in the summer and reappear when cold weather returns in the fall. Is the IT organization, or the organization in general, ready for this to be the “new normal” for at least a few years?
We suggest that IT organizations work with their operational risk committees to review their pandemic scenarios and run simulation testing ASAP to make sure there are no surprises.
Talk to us…we can help.
Hope for the best, but plan for the worst.
UPDATE: Read Mitch’s February 20, 2021 Blog Post: The Pandemic One Year Later
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