How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage

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. © 2023 Editions Dalloz Sirey. All rights reserved.

Premium for Coverage for Excess COVID-19 Infections

Many of the sectors in the economy were negatively affected, particularly insurance sector with the appearance of COVID-19. With the support of governments or reinsurers through the payment of a premium, insurance companies could receive a contingent resource in the face of excess infections caused by the pandemic. This paper calculates the premium to cover the excess affected population with a financial options model with a diffusion process without and with Poisson jumps and the Susceptible-Infected-Recovered (SIR) epidemiological model (this estimation is original). The obtained system is approximated with the Monte Carlo simulation method. The results show that there are important differences in the option premiums when Poisson jumps are included. Lastly, it is highlighted that the premium depends on the behavior trajectory of contagions and strike contagion value (K). This work has a limitation when applied to very particular cases, but a calibration of the parameters with more real information could be done in future research. © 2023 Russell Sage Foundation. Lewis-McCoy, R. L'Heureux, Natasha Warikoo, Stephen A. Matthews, and Nadirah Farah Foley. 2023.

Providing pandemic business interruption coverage with double trigger cat bonds.

The aim of this paper is to show how qualified investors in cat bonds can offer adequate pandemic business interruption protection in a comprehensive public-private coverage scheme. First, we propose a numerical model to expose how cat bonds can contribute to complement standard re/insurance by improving coverage of cedents even though risks are positively correlated during a pandemic. Second, we introduce double trigger pandemic business interruption cat bonds, which we name PBI bonds, and discuss their precise characteristics to provide efficient coverage. A first trigger should be pulled when the World Health Organization declares a Public Health Emergency of International Concern (PHEIC). The second trigger determines the payout of the bond based on the modelised business interruption losses of an industry in a country. We discuss moral hazard, basis risk, correlation and liquidity issues which are critical in the context of a pandemic. Third, we simulate the life of theoretical PBI bonds in the restaurant industry in France by using data gathered during the COVID-19 pandemic.

Reinsuring pandemics: the role of government and public-private partnerships between reinsurers and governments.

Pandemic-related business interruption (BI) losses are generally considered 'uninsurable' because, in order to pool sufficient premium revenue to meet valid claims, premiums would be unaffordable for the majority of policyholders. This paper explores whether and how such losses might be made insurable in the U.K. The authors consider post-pandemic governmental responses, including the role of the Financial Conduct Authority (FCA) and the meaning and implications of FCA v Arch Insurance (U.K.) Ltd ([2021] UKSC 1). The central premise of the paper is to highlight the importance of reinsurance in increasing an underwriter's insuring capacity and to illustrate how, with the support of government in the form of a public-private partnership (PPP), 'uninsurable' risks of this type may be made insurable. The authors propose a PPP, 'Pandemic Business Interruption Re', which provides, in their view, a feasible and defensible solution that would confer the benefit of increasing policyholders' faith in the industry's ability to underwrite pandemic-related BI claims and reduce reliance on ex post government aid.

Transparency in New Zealand Insurance Law

Transparency in insurance law in New Zealand has developed from a combination of statutory regulation, common law principles and—increasingly—soft law in the form of self-regulation. Transparency requirements apply to both insurers and intermediaries. The law is presently under review, and major changes are anticipated for both the substantive rules applicable to insurance contracts and for the regulation of the financial services industry, although the vagaries of the electoral cycle and the impact of Covid-19 may well affect both the timetable and the outcome. This chapter takes in the introduction of a new Fair Insurance Code by the Insurance Industry as from April 2020. © 2021, The Author(s), under exclusive license to Springer Nature Switzerland AG.

NON-DAMAGE BUSINESS INTERRUPTION INSURANCE POLICIES DURING THE COVID-19 PANDEMIC *

Pandemic risks, such as Covid-19, are difficult to insure as they are characterized by multiple factor risks and losses and involve different types of businesses and people simultaneously. The scarcity of time series and statistical data prevents insurers from developing correct pricing. We propose a model of catastrophe risk with Non-Damage Business Interruption (NDBI) policies to manage the pandemic risk due to the spread of Covid-19. The model employs a Monte Carlo simulation of different lockdown scenarios: the frequency and severity distributions of losses of Italian SMEs. The main results show the importance of a Covid-19 lockdown exposure NDBI policy, which benefits not only SMEs but also the insurer.

Interrelation Between Reinsurance and Financial Performance in Slovak Insurance Companies

In addition to floods, which have been considered a priority risk factor in the context of global warming and thus more research has been focused on this issue, there are still a number of other risks that require more attention. A significant risk factor that has recently occurred is the coronavirus SARS COV-2 and that is why its management has been implemented in the risk management of insurance companies. Due to its high infectivity and rapid spread across the planet, this virus has resulted in a pandemic situation. Hence, countries all over the world have had to take plenty of unpopular measures in order to mitigate the spread and the consequent adverse socioeconomic situation. Obviously, this situation has gradually affected various economic subjects at many levels. Insurance companies, as profit-oriented business entities, have the option to transfer the risks they undergo to reinsurance companies in accordance with reinsurance contracts. Reinsurance can thus affect the financial performance of insurance companies. The aim of our study was to examine and quantify the relationship between reinsurance and selected indicators of financial performance of insurance companies in Slovakia. We quantify these relationships through regression coefficients, which are the output of regression analysis. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.

Optimal Time-Consistent Investment and Premium Control Strategies for Insurers with Constraint under the Heston Model

In this work, we study the optimal investment and premium control problem with the short-selling constraint under the mean-variance criterion. The claim process is assumed to follow the non-homogeneous compound Poisson process. The insurer invests the surplus in one risk-free asset and one risky asset described by the Heston model. Under these, we consider an optimization objective that maximizes the return (the expectation of terminal wealth) and minimizes the risk (the variance of terminal wealth). By constructing the extended Hamilton–Jacobi–Bellman (HJB) system with the dynamic programming method, the time-consistent strategies and the corresponding value function are obtained. Furthermore, we provide numerical examples to illustrate the effects of the model parameters on the optimal policies.

Securitizing the Climate Crisis: Racial Geographies of Empire and the Agri-Fintech Frontier

Both companies explicitly brand their financial services in terms of the climate crisis, marketing their insurance products as tools that can, as Pula's website declares, "power the resilience and profitability of smallholder farmers" (Pula n.d.). In this article, I trace an emerging agri-fintech/U.S. security state nexus by reading narratives driving index insurance projects alongside two sets of U.S. government documents: 1) U.S. intelligence community assessments that de- scribe climate change and food insecurity as threats to American national security interests and 2) U.S. global food security policy and strategy documents. [...]of the global economic recession precipitated by the pandemic, a growing num- ber of farmers and food workers worldwide have fallen into conditions of hunger and poverty with those across sub-Saharan Africa experiencing some of the most drastic increases in food insecurity. Yet, at the same time, key institutional actors, such as the Gates Foundation and the U.S. Agency for International Development (USAID) are doubling down on their market-driven approach to managing food insecurity, largely through continued efforts to bring smallholder, subsistence farmers into international supply chains (Clapp and Moseley 2020).

Contraceptive Mandate, ACA Final Rules, And COVID-19.

The Supreme Court upheld broad exemptions to the Affordable Care Act contraceptive mandate; new ACA rules were finalized.