How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage

Sandrine Spaeter

Revue d'économie politique, 2023, vol. 133, issue 2, 177-201

Abstract: In the face of major risks, the financial capacities of private (re)insurers are rapidly reached. For major risks such as natural catastrophes, a risk transfer can be operated to the financial markets through securitization. A pandemic is a cat. Unfortunately a nat cat securitization strategy cannot be replicated for a pandemic cat. In this paper, we consider the economic losses that firms are bearing during a pandemic like the COVID-19. We focus on their most important issues: Risk correlation, impact of administrative decisions, moral hazard, and financial liquidity. Then we propose a coverage strategy of the pandemic business interruption risk that combines self-insurance, standard ? capped ? (re)insurance and new double triggered pandemic business interruption bonds. Lastly, we provide a simple illustration with French data related to the losses borne by the catering sector.

Keywords: pandemic risk; business interruption losses; (re)insurance; securitization; corporate risk management (search for similar items in EconPapers)
Date: 2023
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