ALEXIS LOUAAS | Postdoctoral Researcher, CREST-Ecole Polytechnique
PIERRE PICARD | Professor of Economics, CREST-Ecole Polytechnique
The COVID-19 crisis has highlighted the deficiencies of business interruption insurance when the economic activity is deeply impacted by a worldwide pandemic. Pandemics have a systemic nature, which distinguishes them from other catastrophic risks such as natural disasters or large-scale industrial accidents.
This specificity makes it impossible to mutualize the pandemic risk through insurance or reinsurance. In facing this challenge, capitalization-based insurance mechanisms – so far limited to life insurance - offer a renewed perspective on corporate risk management and provide new opportunities to the insurance industry.
In this perspective, we explore the reasons why business interruption insurance should be backed by a specific portfolio-management strategy, and how such a combination would allow insurers to offer coverage against pandemic risk.