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

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.