Insurability of pandemic risks

  • This paper analyzes the scope of the private market for pandemic insurance. We develop a framework that explains theoretically how the equilibrium price of pandemic insurance depends on accumulation risk, covariance between pandemic claims and other claims, and covariance between pandemic claims and the stock market performance. Using the natural catastrophe (NatCat) insurance market as a laboratory, we estimate the relationship between the insurance price markup and the tail characteristics of the loss distribution. Then, by using the high-frequency data tracking the economic impact of the COVID-19 pandemic in the United States, we calibrate the loss distribution of a hypothetical insurance contract designed to alleviate the impact of the pandemic on small businesses. The pandemic insurance contract price markup corresponds to the top 20% markup observed in the NatCat insurance market. Then we analyze an intertemporal risk-sharing scheme that can reduce the expected shortfall of the loss distribution by 50%.

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Author:Helmut GründlGND, Danjela Guxha, Anastasia KartashevaORCiD, Hato SchmeiserORCiDGND
Parent Title (English):The journal of risk & insurance
Publisher:American Risk and Insurance Ass. ; Wiley-Blackwell
Place of publication:Malvern, Pa. ; Malden, Mass. [u.a.]
Document Type:Article
Date of Publication (online):2021/11/24
Date of first Publication:2021/11/24
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2023/08/04
Tag:catastrophe risk transfer; pandemic insurance; private–public partnerships
Page Number:40
First Page:863
Last Page:902
H Public Economics / H8	Miscellaneous Issues / H84 Disaster Aid
Open Access funding enabled and organized by Projekt DEAL.
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:G Financial Economics / G2 Financial Institutions and Services / G22 Insurance; Insurance Companies
G Financial Economics / G2 Financial Institutions and Services / G28 Government Policy and Regulation
G Financial Economics / G3 Corporate Finance and Governance / G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
J Labor and Demographic Economics / J6 Mobility, Unemployment, and Vacancies / J65 Unemployment Insurance; Severance Pay; Plant Closings
Q Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Q5 Environmental Economics / Q54 Climate; Natural Disasters; Global Warming
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International