Pandemic and insurance purchase: How do people respond to unprecedented risk and uncertainty?

We investigate how people insure themselves against an upsurge of risk and uncertainty during a pandemic. Using high-frequency, city-level insurance purchases data from the largest online insurance platform in China, we employ difference-in-differences strategies to quantify changes in insurance purchases before and after the COVID-19 outbreak relative to a corresponding period in 2019. We show that the pandemic induces a substantial increase in daily number of insurance purchase, with evident impact on both health and life insurance. We demonstrate that the increase mainly originates from an expanded number of consumers; and is not driven by compositional shifts. Particularly, we show that the observed increase is better explained by pandemic risk exposure than other mechanisms such as negative emotions and insurance awareness. Nevertheless, there is a notable discrepancy between changes in insurance purchases and COVID-19 risk exposure, which is driven by individuals' lack of information on pandemic. We find that the more direct and high-quality information people have, the more likely their decisions are to accord with the objective risk exposure. These findings reveal the key driving forces of the risk management responses under an unprecedented pandemic, and point to the importance and necessity of public information disclosure.