Epidemic and Pandemic Risk Transfer Solutions and Options for Public Sector Support

Munich Risk and Insurance Center Working Paper No. 41

21 Pages Posted: 27 Jul 2021

See all articles by Gunther Kraut

Gunther Kraut

Munich Re; Ludwig Maximilian University of Munich (LMU) - Munich Risk and Insurance Center (MRIC)

Raymond de Kuiper

Munich Re

Date Written: May 19, 2021

Abstract

The current COVID-19 pandemic caused a significant shock to the world economy which led to large-scale government support measures and thus proved the non-resilience of the current financial ecosystem, with devastating effects on the human global population. As research indicates, pandemic disease outbreaks will increase in frequency and impact in the future. This paper addresses the question how to possibly create a prudent and resilient financial ecosystem resistant to future disease outbreaks and minimalizing the individual financial and economic impact. While insurance risk transfer solutions have been available for epidemic risk, fundamental hurdles of insurability prevent the supply of sufficient capacity to address the magnitude of potential economic losses. A risk transformation market platform is described which enables a wider participation of capacity providers. While initially focusing on a specialty market segment, it is analysed how governments can contribute, alongside private sector investors, to an accelerated industrialization of this market segment. It is shown how the challenge of affordability for insureds can be addressed without requiring premium subsidies, thus maintaining risk-adequate incentives which are relevant for preparedness.

Keywords: epidemic risk, pandemic risk, epidemic risk insurance, pandemic risk insurance, pandemic investment, Epidemic Risk Markets, epidemic risk transfer, pandemic risk transfer, risk management, public sector, PPP, ESG investment, sustainability

JEL Classification: C49, D40, E22, E44, E69, F39, G11, G15, G18, G22, G23, G28, G32, G38, H48, I18, O16, Q01

Suggested Citation

Kraut, Gunther and de Kuiper, Raymond, Epidemic and Pandemic Risk Transfer Solutions and Options for Public Sector Support (May 19, 2021). Munich Risk and Insurance Center Working Paper No. 41, Available at SSRN: https://ssrn.com/abstract=3888337 or http://dx.doi.org/10.2139/ssrn.3888337

Gunther Kraut (Contact Author)

Munich Re ( email )

Königinstr. 107
Munich, 80802
Germany

Ludwig Maximilian University of Munich (LMU) - Munich Risk and Insurance Center (MRIC)

Schackstraße 4/III
Munich, 80539
Germany

Raymond De Kuiper

Munich Re ( email )

Königinstr. 107
Munich, 80802
Germany

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