Flu Pandemic: Financial Institutions at Risk - Essay Example

Flu Pandemic: Financial s at Risk "Flu pandemics are global outbreaks of virulent influenza caused by a viral strain so different from those of prior years that the human population has no natural resistance to it" (Russell A1). Recent events have proven the world unprepared for a now long overdue pandemic, which occurs ever ten to forty years (Arthur 1). SARS exhibited the economic damage possible if a major pandemic occurs during this era. Travel and tourism decreased to places with SARS outbreaks, which decreased income for the government of those areas. Businesses temporarily lost employees due to illness and permanently lost employees due to deaths. Health professionals expect the bird flu to become a major pandemic throughout the world. "The World Health Organization has confirmed 173 cases of the avian flu virus in humans, most of whom had close contact with diseased birds. Of those, 93 people died, almost all of them in Asia" (Rosenthal and Bradsher C1). The flu is currently passes from bird to human but could mutate to pass from human to human creating a world wide pandemic (Arthur 2). Financial Institutions are one of many sectors that will be highly affected by a major pandemic. Cash flow effects disaster relief programs, government finances, insurance claims, and almost all aspects of human livelihood. Cash flow needs to be fully functional in order to maintain the economy and control a pandemic. Financial Institutions are unprepared for flu pandemic. Outbreaks of the bird flu have occurred in South East Asia, "which has caused a total of 53 confirmed human deaths" ("Renewed warning" 1). Transmission of the virus currently occurs between bird and human and "60% of those infected have dies" ("Renewed warning" 1). The flu transmits by migratory bird from bird droppings. If the virus mutates to a form able to transfer between humans, then a major flu pandemic would occur. There have been indications of transfer from human to human but nothing conclusive. If the virus could spread between humans, it would do so at a highly rapid pace. Creating a vaccine in advance is difficult because the virus could mutate into many forms; however, the UK is stockpiling flu vaccines and anti-retroviral drugs in preparation for a pandemic. The world has dealt with flu pandemic in previous years; however, the world is currently unprepared to deal with a major pandemic at this time. If the virus mutates and spreads at the rapid pace predicted, there will be a shortage of vaccines causing billions of people to become ill and millions to die. Flu pandemic will decrease the labor supply for all businesses temporarily and permanently. "Banks would need to ensure that computer systems continued to move money internationally and that local customers could get cash" (Rosenthal and Bradsher C1). All sectors of the world rely on financial cash flow including the government, hospitals, businesses, laborers, and consumers. A labor shortage in financial institutions would cause a delay in companies processing accounts, making purchases, balancing accounting records, funding important programs, consumer purchase, and employee payroll. Companies that can allow its workforce to work at home via the IT system will be affected less then other companies, however, most financial institutions require direct employee-customer contact. A labor shortage will affect financial institutions because of this need for direct customer contact. Laborers who become ill will remain home from work, some will remain home to care for an ill family member or child, some skip work to avoid becoming ill, and others will eventually die from the disease. "Up to 40 percent of employees could be sick at one time" (Rosenthal and Bradsher C1) causing the labor supply to drastically decrease and the mortality rate will increase. A decrease in the labor supply can affect the economy in a number of ways. The cost of labor will increase when there is a shortage in labor and this could cause the value of currency to decrease. A labor shortage will also decrease productivity, which will affect inventory, exports, sales, and customer confidence. Decreased productivity will create inventory shortages, lack of sales domestically and internationally, and cause consumers to stockpile cash, food, and other necessities. The Deloitte report says, ''a pandemic flu outbreak in any part of the world would potentially cripple supply chains, and dramatically reduce available labor pools.'' (Rosenthal and Bradsher C1). An increase in the cost of labor coinciding with a decrease in labor productivity is a sign of inflation. Inflation increases the cost of goods and services causing currency to purchase less goods or services for the monetary amount. If inflation is rapid, it could cause a countries monetary system to break down. The effects of a decreased labor force will become long-term if the death toll is higher then expected. Despite a depleted workforce, cash must continue to flow from one financial institution to the customer in order to maintain the financial stability of the economy. Without financial stability, a downward cycle of events is inevitable for the economy. Contingency plans need to be developed to prevent infection and loss of productivity within companies. Insurance claims for employees will skyrocket for both health and life insurance benefits. An increase in illness will increase medical insurance claims and deaths will increase claims on life insurance causing "insurers to suffer billions of dollars in losses" (Bradford 1). All companies have a variety of insurance to deal with the liability that a business may face. Employers must insure that there is coverage for "health care, business interpretation, workers compensation, and other insurance related losses"(Bradford 1). Financial Institutions should prepare company insurance cash reserves for increased demands. Low cash reserves for insurance will cause a problem when demand for payouts increase due to a flu pandemic and this, in turn, could create more deaths due to lack of coverage. "Insurers worldwide could suffer losses from $71.3 billion to $200 billion in a worst-case scenario, according to Standard & Poor's Corp." (Bradford 2). Group Life insurance will have the most difficulty in the payout process due to maintaining low cash reserves (May 14). The flu pandemic will increase the probability of everyone associated with a Group Life Insurance policy to make a claim at the same time. This could cause whole families to face death due to a lack of financial stability in the insurance sector of the financial institutions. "In the United Kingdom, London-based broker Heath Lambert Group provides a program in which U.K. poultry farmers can buy a mortality policies that include coverage for financial losses suffered in an avian flu outbreak" (Bradford 2). Coverage specifically designed for a flu outbreak could provide some financial stability on claims in the insurance industry when a flu pandemic strikes. A reorganization of insurance policies and finance could prepare insurance companies for an increase demand. New policies and insurance plans designed specifically for an unexpected pandemic could generate more business and prepare consumers for pandemics diminishing health and financial concerns fro medical treatment. Demand for goods and services will decrease domestically and internationally. "The World Bank has estimated that each year of a severe pandemic could cost the U.S. economy $100 billion to $200 billion, and economies worldwide could suffer a total per-year loss of $800 billion" (Bradford 1). Consumers would save more because they would avoid public places in order to keep from getting ill and save money to prepare for lack of insurance if illness strikes. Consumers will also avoid spending money because of high prices for goods and services due to inflation. The lack of consumer purchases will cause the Gross Domestic Product to decline. A lack of consumer purchases will diminish financial support for businesses and governments all over the world. Financial institutions in all sector must be prepared to compensate for decreased demand for goods and services due to fear of infection and price inflation. Bird flu outbreaks in high tourist area will cause tourist income to decline for those cities. "The SARS outbreak in Singapore in 2002, led to an 80% fall in tourism arrivals for a short period" ("Economic Dangers" 4). Tourist income is a major source of income for many countries and without that income those countries economies will suffer. The fear of traveling to counties where the flu pandemic originated and illness will prevent tourism and cut into government financing. The declining consumer confidence will create a decrease in investments, which is another source of government funding. With government finances and productivity of the labor force declining, the ability to export goods and services will also decline. A decrease in government finances may lead to an economic recession, which signified a decrease in the Gross National Product. A decrease in government finances will also prevent the government from maintaining government funded programs set up to encourage economic growth. "The impact on consumer spending and trade may be large, even if human cases and death rates are low" (Analytica 1). Global trade will decline affecting the exports of the country significantly. In order to control the spread of the virus, "countries might impose restrictions on exports, which would cause an increase in commodity prices" (McAlary 1). A raise in commodity price will make purchasing exports more difficult for poorer countries suffering the same afflictions. The fear of importing poultry contaminated with the bird flu virus will decrease the demand on exported poultry products. If labor shortages decrease productivity, demand for other exports will also decrease. Lack of investments, ability to exports, and tourist travel will decrease government finances. "Air passengers would be the first vector of infection, followed by the people who traveled with them in the train or Underground train or coach from the airport" (Arthur 3). Traveling to countries with flu outbreaks and traveling with travelers who have recently visited countries with flu outbreaks will increase the chances of viral transfer. Tourist will avoid areas where there are flu outbreaks in order to remain health. Consumers will also avoid traveling to prevent contact with potential carriers of the virus. The lack of tourist income will decrease government finances and may lead to an economic recession. The economy will suffer in an event of flu pandemic but an economically stable country could rebound faster then poorer countries in the event of the flu pandemic. "Even if bird flu is confined to the bird population, the effects are likely to be significant, given the size of the poultry farming industry and the resulting disruption in agricultural trade" (Analytica 1). The decrease in exports of poultry products could create a decrease in Gross Domestic Product creating significant governmental monetary losses. A decline in government funding will increase the national debt and cause the government to cut budget on important social and economic programs funded solely by the government. Financial Institutions and the government should work together to prepare for a pandemic. In response to the foreboding flu pandemic, The United Kingdom created a plan to stockpile Tamiflu and anti-retroviral drugs to prepare for a pandemic. Studies have shown; however, that Tamiflu can only save lives if given to the patient in the early stages of the illness, "no more than two days after the first symptoms appear" (Makenzie 1). Tamiflu may provide a cure early on, but as the virus mutates this product may not be effective to fight the illness. Another concern is that Tamiflu is being stockpile by the richer counties leaving the poor countries unprotected because of the products short supply. Although bird flu is transmission from human to bird and cases of infection are not on a pandemic scale, the bird flu has the potential of becoming a very deadly disease. Travelers should take precautions when traveling abroad and poultry handles should take precisions in when working with birds to prevent contamination. If mutation does occur, preparations for vaccines many not be effective to fight the mutated strain of bird flu. It is possible that the virus will not mutate to become transferable from human to human, but the health care community as well as financial institutions must prepare for the unexpected. Precautions within the company infrastructure are necessary to prevent the transmission of disease. Businesses should prepare for an increase number of absences among workers and create a plan of action to increase productivity among healthy employees and "establish minimum staffing levels" (O'Reilly 9). Train employees to work in areas of the company that other than their area of expertise to cover areas lacking due to employee absences. Businesses should also allow for appropriate breaks and rest areas for employees to remain healthy. Consider utilizing volunteers to increased employee coverage, in the event of flu pandemic. Training regular employees to handle unusual circumstances and practice dealing with volunteers will aid in labor productivity during a labor shortage (O'Reilly 9). Business must provide strong counseling program to help employees deal with loss, stress, illness, anxiety, and exhaustion (O'Reilly 9). Creating a plan to encourage healthy employees to maintain productivity during labor shortages will also provide a reason for healthy employees to continue to work. A company should also provide seminars on staying healthy in the work place. These seminars should cover health etiquette between both fellow employees and customers. A business that considers these factors prepares itself for unusual circumstances like flu pandemic. Preparing the economy for unexpected events prepares the world for natural disasters, pandemics, and other unpredictable occurrences. "According to the World Health Organization, if a new pandemic did hit us, a quarter of the world's population could fall ill and many of them could die" (Higham 24) Financial Institutions necessary to remain financial stability in the economy and therefore financial institutions need to be prepared for a pandemic. Absenteeism will be the major effect of a pandemic and developing a plan is necessary for financial institutions to maintain the level of productivity necessary for a thriving economy. Insurance companies must increase cash reserves to prepare for an increase in claims from illness and death. Employees must be able to work in many areas of their field to cover absenteeism without a sharp decline in productivity. Educating employees on preventative mannerisms to avoid transmitting disease keep infection at a minimum. If financial institutions do not prepare for an inevitable pandemic, the global economy could stagnate or even fail. A thriving economy is important to maintain in today's society. All aspects of a business organization must work together to maintain productivity despite labor shortages, decrease ability to export, or inflationary prices. The global world must work together to prevent a major bird flu pandemic making strides in vaccines, health care, insurance, benefits, and business organization. The United Kingdom and other countries are preparing vaccines to fight the virus; however, financial institutions must prepare to fight a monetary breakdown of the economy. Financial Institutions need to prepare themselves for the flu pandemic. Bibliography Analytica, Oxford "Bird Flu Could Shrink Global GDP Forbes 11 November 2005: Accessed 2 Apr. 2006 http://www.forbes.com/business/2005/11/10/avian-flu-pandemic-cx_1111oxford_birdflu.htmlpartner=vnu Arthur, Charles. "Bird flu: we're all going to die." The Register 2 June 2005: Accessed 1 Apr. 2006 http://www.theregister.co.uk/2005/06/02/bird_flu/ Bradford, Michael. "Potential avian flu pandemic raises insurance questions." Business Insurance 2 Jan. 2006: Vol. 40, Issue 1. Higham, Nick. "Flu pandemic would prove devastating to businesses." Marketing Week (UK) 2 Feb. 2006: Vol. 29 Issue 5, p 25-25. Mackenzie, Debora. "Can Tamiflu save us from bird flu" New Scientist.com 2 June 2005: Accessed 2 Apr. 2006 http://www.newscientist.com/channel/health/mg18625023.100 May, Johnathan. "Insurance industry would be hit hard by potential bird flu epidemic." Caribian Business 2 Mar. 2006: Vol. 34 Iss. 8, p 14 McAlary, David. "IMF:Bird Flu Pandemic Could Tempoiraly Hit Global Economy." VOA News 12 Mar. 2006: Accessed 1 Apr. 2006 http://www.voanews.com/english/2006-03-13-voa44.cfm O'Reilly, Sally. " Planning for the flu pandemic." Occupational Health Feb 2006: Vol. 58, Issue 2. "Renewed warning over flu pandemic." BBC News 25 May, 2005: Accessed 1 Apr. 2006 http://news.bbc.co.uk/1/hi/health/4579777.stm Rosenthal, Elisabeth; Bradsher, Keith. "Is Business Ready for a Flu Pandemic" The New York Times 16 Mar. 2006: C1 (L). Russell, Sabin. "Flu pandemic looms, experts warn world; many millions could die if Southeast Asian bird virus mutates to easily transmitted form." San Francisco Chronicle 26 May 2005: A1 "The Economic Threat of a Flu Pandemic." Latin America Monitor: Andean Group Monitor Apr 2006: Vol. 23 Issue 4, p 4-5. Read More