The coronavirus outbreak calls for epidemic catastrophe insurance: Evidence from China.

Abstract

The COVID-19 shows significant "catastrophe" characteristics. It has put tremendous pressure on various countries' government finances. A few studies have realized that insurance could be applied in the rescue of catastrophic epidemics to relieve government pressure and improve rescue efficiency. However, most of these studies are based on qualitative analysis, with few quantitative calculations to prove whether it is feasible. Therefore, this article discusses the insurability of epidemic catastrophe insurance and proposes a novel quantitative methodology that measures insurance funds, estimates pandemic-induced losses, and integrates reinsurance analysis to evaluate its effectiveness. Based on epidemic loss data collected from public information in China, the empirical study shows that China's epidemic catastrophe insurance fund can reach 50 billion yuan 5 years after its establishment and over 120 billion 10 years later, which can cover the losses caused by mild and severe epidemics. The epidemic catastrophe fund is capable of meeting claims requirements and effectively covering epidemics of varying severities. Furthermore, the reinsurance model demonstrates that insurers can transfer risks at a relatively reasonable cost, thereby covering losses from extreme epidemics. The findings reveal the effectiveness of epidemic catastrophe insurance, suggesting that worldwide countries incorporate epidemics into their catastrophe insurance to aid government in responding to future catastrophic epidemics.