Public Health Crises, Product Pricing, and Risk Management: U.S. Life Insurance during the 1918–19 Influenza Pandemic

36 Pages Posted: 26 Sep 2020 Last revised: 1 Nov 2021

See all articles by Gustavo Cortes

Gustavo Cortes

Warrington College of Business, University of Florida

Gertjan Verdickt

KU Leuven, Department Accounting, Finance and Insurance

Date Written: August 29, 2021

Abstract

Using a novel, hand-collected dataset of U.S. life insurance companies during the Influenza Pandemic of 1918–19, we show that high-exposure firms charged higher prices on new policies vis-à-vis less exposed firms. Since the pandemic surprisingly increased mortality rates among young adults, we argue that insurers used product pricing as a risk management tool to mitigate the probability of financial distress. Consistent with this channel, health shocks significantly impact firms’ exit and entry decisions depending on a state’s exposure to the disease. Finally, we show that competing explanations for the observed price differences find little support from the data.

Keywords: Spanish Flu Pandemic, 1918–19 Influenza, Life insurance firms, COVID-19

JEL Classification: N11, N12, N21, N22, N81, N82, G22, G52

Suggested Citation

Cortes, Gustavo and Verdickt, Gertjan, Public Health Crises, Product Pricing, and Risk Management: U.S. Life Insurance during the 1918–19 Influenza Pandemic (August 29, 2021). Available at SSRN: https://ssrn.com/abstract=3697832 or http://dx.doi.org/10.2139/ssrn.3697832

Gustavo Cortes

Warrington College of Business, University of Florida ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/directory/person/9136/

Gertjan Verdickt (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

HOME PAGE: http://www.verdickt.eu

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