How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage

Comment réconcilier la couverture des pertes d’exploitation et le risque de pandémie

Sandrine Spaeter
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Sandrine Spaeter: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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; Pandémie; Pertes d’exploitation; Ré/assurance; Titrisation; Gestion des risques entreprises (search for similar items in EconPapers)
Date: 2023-04-25
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Published in Revue d'économie politique, 2023, 133 (2), pp.177-201. ⟨10.3917/redp.332.0177⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04271343

DOI: 10.3917/redp.332.0177

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