Pandemics in context- the longer view…

There is barely anyone alive who remembers the last true global pandemic, the so-called “Spanish Flu” of 1918/19, which by most estimates killed over 50 million people (at least 3% of the then total world population) in the aftermath of World War One.

Many articles have recently been written about the human cost of that pandemic. However, it had surprisingly few long-term political or economic effects, because it occurred in a world already traumatized by destruction and the imperial convulsions in the aftermath of the war, and more than a little distracted by the continuing unfolding of the Russian Revolution, which (it is sometimes also forgotten) impacted a huge swathe of the Eurasian land mass from Archangelsk and Minsk to Vladivostok.

This time is rather different. While there was a lot of “noise” around various themes and issues, for most of the developed world at least economic conditions were still fairly benign, and so the noise and chatter were just that, with little real impact.

Covid-19 has upended what amounted to wary complacency. Yes, a recession of some sort was anticipated as the business cycle was unusually prolonged (this time was not different, so to speak); but no-one foresaw the economic equivalent of a train hitting the buffers.

As a result, even if the impending sharp economic contraction is relatively short-lived (which seems increasingly unlikely), the judgements made and behavioural effects are likely to linger. As Morgan Housel of The Collaborative Fund recently entitled an article: “Wounds heal, scars last”. The Great Depression had lasting effects on the behaviour of individuals. As a result, corporations and governments generally became more conservative in social and economic terms, deflating money supply and raising tariffs, even if those actions tended to compound the very problems of lack of growth and opportunity which they were trying to avoid. One can argue that it took at least a full generation for behaviour to become more relaxed and optimistic, and for “animal spirits” to return after the further trauma and upheaval of World War Two.

What is quite striking about current circumstances is that in barely 8 weeks “everything has changed”. Fear, disbelief and uncertainty stalk many lands; while government has gone from being the problem to the (hoped for) answer, even if the effectiveness of actions being taken is, as yet, barely  tested. As long as only relatively modest geographies, or “unimportant” populations were impacted by, say, SARS, MERS or Ebola, normality returned quite quickly.  As an aside, AIDs was (and still is in some areas) a pandemic, although it was never treated as such. Lessons may have been learned, but they were remarkably quickly forgotten. The world was manifestly wholly unprepared for what is now unfolding.

So, the question now arises as to whether this time will be different, because individuals and policymakers will finally realize that complex, interdependent systems transmit shocks much more quickly than assumed; and also create emergent behaviours, with non-linear and as yet unpredictable consequences.

In such circumstances, standing still or freezing, like the proverbial “rabbit caught in the headlights” is the worst possible action to take: it changes nothing, can have no positive outcome (wishing something were not so does not make it go away!) and actually destroys value. While acting defensively when necessary, well-considered, bold decisions are called for if the world in general, and the (re)insurance industry in particular, are to emerge from the current crisis without lasting damage to economies and franchises.

At Awbury, we constantly strive to be ready defensively to step up and meet the challenges faced, while going on the offensive when opportunity presents itself.

The Awbury Team

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