Six top takeaways on creating pandemic scenarios

In response to the coronavirus (Covid-19) outbreak, the ORX Scenarios team have now held two discussions with their subscribers on pandemic scenarios.

We've summarised these discussions into a short report which sets out the key points and explores the different areas you need to consider when creating a pandemic scenario storyline. For example, going into more detail about the primary and secondary impacts and the risk drivers.

We are carrying out further work with our scenario network to produce a pandemic scenario stereotype. You’ll be able to use this as a base for developing your own pandemic scenario, for reviewing and challenging the assumptions in your current scenario and to support internal discussions.

Top-level takeways from the discussions

1. The COVID-19 outbreak is re-writing the way pandemic scenarios should be developed

The current situation itself can potentially be considered as a base scenario, particularly with the pace COVID-19 has spread in all regions and the government reactions to curb it.

2. Pandemic scenarios developed so far by financial institutions are now seen as not severe enough

They were usually limited to a given region of the world and considered mainly from the direct impact to the firm’s employees.

3. Pandemic scenarios are likely best developed at group level as opposed to legal entity level

The current situation shows that they can have a group-wide impact, crossing multiple regions and lines of business.

4. Similarly, for other risks, pandemic scenarios should be dynamic and built by considering key risk drivers

In this way, the final impact can be scaled by “playing” with key factors such as the duration of the outbreak, absentee rate or IT infrastructure capability.

5. Pandemic scenarios developed for risk management purposes could take into consideration “knock-on” changes in the operational risk profile

For example, increases in fraud, cyber, technology failure, reputational damage and conduct risks.

6. The cost of “going back to normality” is something most firms never considered in their pandemic scenarios

In the current situation the industry is experiencing, we are seeing changing risk appetites, with some controls being relaxed or removed to keep the business running. What is the cost of putting controls back in place?

Find out more

Download the summary to read more about the discussions, including a focus on the different elements of a scenario pandemic storyline.