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Government insurance for business interruption losses from pandemics: An evaluation of its feasibility and possible frameworks

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  • Robert W. Klein
  • Harold Weston

Abstract

Many businesses have suffered severe economic losses due to the COVID‐19 pandemic. Because property business interruption (BI) policies generally do not cover losses caused by a virus, this has led to proposals for some form of government program that would provide this coverage. We explain why private BI pandemic insurance on a broad scale is infeasible. Arguably, BI pandemic insurance has substantial positive externalities and this has implications with respect to the desirability of government provision of this coverage and its financing. Our paper considers the goals of a government BI pandemic insurance program and the challenges it would face with respect to its design and implementation and how they could be addressed. In this context, we evaluate current proposals for such a program, including legislation currently being considered by the Congress. We conclude that creating such a program requires thorough and careful consideration of its features and the tradeoffs involved with its structure. The essential question for policymakers is whether the best possible program would be in the public interest and increase social welfare. Further, political considerations will likely influence the design of any program in ways that would make it less efficient and possibly less equitable.

Suggested Citation

  • Robert W. Klein & Harold Weston, 2020. "Government insurance for business interruption losses from pandemics: An evaluation of its feasibility and possible frameworks," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(4), pages 401-440, December.
    • Handle: RePEc:bla:rmgtin:v:23:y:2020:i:4:p:401-440
    DOI: 10.1111/rmir.12162
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    References listed on IDEAS

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    Cited by:

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    2. Eberhard Feess & Cathrin Jordan & Ilan Noy, 2022. "Insurance for Catastrophes - Indemnity vs. Parametric Insurance with Imperfect Information," CESifo Working Paper Series 9631, CESifo.
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