Pandemic Insurance: What You Need to Know

The COVID-19 pandemic has served as a stark reminder of the fragility of our global systems. Businesses large and small, as well as individuals, have felt the brunt of the pandemic’s impact, facing unprecedented financial strain and operational disruptions. 

The crisis has highlighted the need for comprehensive risk management strategies, leading to a surge in interest in pandemic insurance coverage. This specialized form of insurance promises a safeguard against the economic turmoil wrought by widespread contagious diseases. But what is pandemic insurance, how does it work, and how can you obtain it? In this blog post, we will answer these questions and more.

What is Pandemic Insurance?

Pandemic insurance is a type of insurance that covers the losses resulting from a pandemic, such as business interruption, loss of income, medical expenses, and death benefits. Pandemic insurance is different from traditional insurance, which usually excludes losses caused by pandemics or other widespread events. Pandemic insurance is also different from health insurance, which covers the medical costs of individuals who contract a disease, but not the broader economic and social consequences of a pandemic.

Here are some reasons why you need pandemic insurance:

1. Financial Protection: Pandemics can lead to significant financial losses due to business interruptions, medical expenses, and other unforeseen costs. Pandemic insurance can provide a safety net to cover these losses.
2. Business Continuity: For businesses, the disruption caused by a pandemic can be catastrophic. Insurance helps ensure that a business can survive and continue operations after a pandemic.
3. Healthcare Costs: Individuals may face high medical bills if they contract a disease during a pandemic. Pandemic insurance can help cover these costs, alleviating financial stress.
4. Economic Stability: Pandemics can destabilize economies. Insurance can play a role in mitigating the economic impact by providing timely payouts to those affected.
5. Legal and Contractual Obligations: Some businesses may have contractual obligations that require them to maintain certain levels of operation. Pandemic insurance can help fulfill these requirements, even during a health crisis
6. Risk Management: Insurance is a key component of risk management strategies, helping to manage the risks associated with pandemics, which are increasing in frequency due to global mobility and urbanization.
7. Peace of Mind: Knowing that you have coverage can provide peace of mind in uncertain times, allowing individuals and businesses to focus on other important aspects of life and operations.

How Does Pandemic Insurance Work?

Pandemic insurance works by pooling the risks of many policyholders and paying out claims when a pandemic occurs. The premiums and payouts of pandemic insurance depend on several factors, such as the severity, duration, and geographic spread of the pandemic, the type and size of the business or individual covered, and the level and scope of the coverage. Pandemic insurance can be offered by private insurers, public entities, or a combination of both. Some examples of pandemic insurance products are:

• Business interruption insurance: This covers the loss of revenue and operating expenses of a business due to a pandemic. For example, a restaurant that has to close or reduce its capacity due to a lockdown or social distancing measures can claim for the loss of income and fixed costs, such as rent and utilities.
• Event cancellation insurance: This covers the costs of canceling or postponing an event due to the pandemic. For example, a concert organizer who has to cancel or reschedule a show due to a travel ban or a quarantine order can claim for the expenses incurred, such as venue rental, marketing, and refunds.
• Travel insurance: This covers the costs of canceling or interrupting a trip due to a pandemic. For example, a traveler who has to cancel or cut short their vacation due to a flight cancellation or a border closure can claim the non-refundable deposits, tickets, and accommodation fees.
• Life insurance: This covers the death benefits of a policyholder who dies due to a pandemic. For example, a family who loses a loved one due to COVID-19 can claim for the sum assured, which can help them cope with the financial and emotional loss.

How Much Does Pandemic Insurance Cost?

The cost of pandemic insurance can vary widely based on several factors, such as the location of the business, the industry it operates in, and the level of coverage desired. For example, a new policy by Huckleberry, an insurtech company, is designed to cover small businesses against future pandemic shutdowns, including those from COVID-19. The premiums for this plan are influenced by the infection rate at the business’s location at the time of purchase, with higher rates potentially leading to higher premiums. While the pricing is still being finalized, policies are expected to start at around $250 a month, which might provide shutdown coverage of roughly $3,500 a month.

For ongoing coverage against future pandemics, the premiums could drop significantly once the COVID-19 pandemic ends, with estimates suggesting they could be as low as $5 or $10 a month. It’s important to note that these costs are for business interruption insurance specifically related to pandemics and would be in addition to regular business interruption insurance, which typically costs between $40 to $130 a month.

To get the most accurate pricing, it’s recommended to contact insurers directly, as they can provide quotes based on the specific needs and risk profile of the business or individual. Keep in mind that pandemic insurance is a specialized product and may not be available from all insurers.

How Can You Obtain Pandemic Insurance?

Pandemic insurance is not widely available or affordable for most businesses and individuals, as the risk of a pandemic is difficult to predict and quantify. However, there are some ways to obtain pandemic insurance or similar protection, such as:

• Seeking specialized insurers: Some insurers offer pandemic insurance or pandemic-related coverage as part of their niche products or services. For example, Munich Re, a global reinsurance company, offers pandemic risk solutions for various sectors, such as hospitality, entertainment, and aviation. However, these insurers may charge high premiums, impose strict conditions, or limit the coverage amount or duration.
• Participating in public programs: Some governments or international organizations offer pandemic insurance or financial assistance for businesses and individuals affected by a pandemic. For example, the U.S. government provides the Pandemic and All-Hazards Preparedness and Advancing Innovation Act (PAHPAIA), which authorizes the Secretary of Health and Human Services to declare a public health emergency and provide funds, resources, and waivers to respond to a pandemic. Another example is the World Bank, which launched the Pandemic Emergency Financing Facility (PEF), which provides rapid funding to low-income countries to prevent or contain a pandemic. However, these programs may have limited funding, eligibility criteria, or coverage scope.
• Creating your contingency plan: The best way to prepare for a pandemic is to create your contingency plan, which can help you reduce the impact of a pandemic on your finances and operations. For example, you can create an emergency fund, diversify your income sources, review your existing insurance policies, and update your business continuity plan.

Conclusion

Pandemic insurance is a type of insurance that can protect against the losses caused by a pandemic, such as business interruption, loss of income, medical expenses, and death benefits. However, pandemic insurance is not widely available or affordable for most businesses and individuals, as the risk of a pandemic is difficult to predict and quantify. Therefore, it is important to seek specialized insurers, participate in public programs, or create a contingency plan to prepare for a pandemic. By doing so, you can minimize the disruption and damage of a pandemic and ensure your financial and operational resilience.