Insurability of Pandemic Risks

41 Pages Posted: 16 Dec 2020

See all articles by Helmut Gründl

Helmut Gründl

Goethe University Frankfurt - Department of Finance; International Center for Insurance Regulation

Danjela Guxha

University of St. Gallen

Anastasia V. Kartasheva

University of St. Gallen - I.VW-HSG; Joshua J. Harris Alternative Investment Program

Hato Schmeiser

University of Muenster - Faculty of Economics; University of St. Gallen - I.VW-HSG

Date Written: December 14, 2020

Abstract

The paper analyzes the scope for the private market for pandemic insurance and discusses the potential role of the financial market and the government. Building on a premise that pandemics are classified as catastrophic risks by the insurance industry, we start by providing a framework that explains theoretically how the catastrophe insurance supply and demand depend on the skewed and fat-tailed loss distributions and the co-movement between insurance stocks performance and the financial market. We use the model to estimate the supply of insurance for natural catastrophes. Then, by using the high-frequency data that tracks the economic impact of the COVID-19 pandemic in the US, we calibrate the loss distribution of a hypothetical insurance contract designed to alleviate the impact of the pandemic on small businesses and employment. The model of catastrophic insurance supply provides a calibration of the supply of pandemic insurance and allows us to compare it to other types of catastrophic insurance. Building on our estimation results, we discuss the scope for the risk transfer to the financial market and the role of the government.

Keywords: pandemic insurance, catastrophe risk transfer, private-public partnerships

JEL Classification: G22, G28, G32, J65, H84, Q54

Suggested Citation

Gründl, Helmut and Guxha, Danjela and Kartasheva, Anastasia V. and Schmeiser, Hato, Insurability of Pandemic Risks (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3748753 or http://dx.doi.org/10.2139/ssrn.3748753

Helmut Gründl

Goethe University Frankfurt - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://https://www.wiwi.uni-frankfurt.de/en/departments/finance/home.html

International Center for Insurance Regulation ( email )

House of Finance
Campus Westend, Goethe University
Frankfurt am Main, D-60323
Germany

HOME PAGE: http://www.icir.de

Danjela Guxha

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

Anastasia V. Kartasheva (Contact Author)

University of St. Gallen - I.VW-HSG ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

Joshua J. Harris Alternative Investment Program ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Hato Schmeiser

University of Muenster - Faculty of Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

University of St. Gallen - I.VW-HSG ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

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