Why Businesses Missed Out on Pandemic Insurance: A Deep Dive into the Economics of Risk

The Existence of Pandemic Insurance

Business interruption policies generally exclude losses from closures due to virus or bacteria. Yet insurance against losses due to a pandemic like COVID-19 did in fact exist well before the first case of COVID-19 was reported in the U.S. A recent Wired article, We Can Protect the Economy From Pandemics. Why Didn’t We? gives an in-depth look at the origins and development of pandemic insurance–and why it was ignored by business owners and risk managers who potentially stood to gain the most (or lose the least) from having it.

The Development of Pandemic Insurance

On the surface, the article’s author recounts the sort of innovation and ingenuity that most of us familiar with insurance can easily recognize. But just beneath is a fascinating glimpse at how insurers, virologists and epidemiologists, and data scientists devised ways to understand and rationalize the economics of outbreaks—and at the amazing race to quantify and price pandemic risks to bring an insurance product to market.

The Failure of Imagination

Without trifling, this is a gripping saga involving global NGOs, multinational corporate giants, visionary business derring-do, and catastrophic failures of the imagination. But from its pages, we get a fuller understanding of insurance as a pervasive force that, in spite of its sophistication, ubiquity and capacity for good, nevertheless sometimes bows to the principles of behavioral economics. According to a survey conducted by the Insurance Information Institute, only 15% of businesses had pandemic insurance in place before the COVID-19 outbreak, despite the availability of such policies for years.

In conclusion, businesses should consider the importance of pandemic insurance as part of their risk management strategy. The COVID-19 pandemic has shown us the devastating impact that a global health crisis can have on the economy. By investing in pandemic insurance, businesses can protect themselves from potential losses and ensure their long-term survival.