A Framework for Defining a Role for Insurers in “Uninsurable” Risks: Insights from COVID-19
Howard Kunreuther and I recently collaborated to develop a decision-making framework for evaluating strategies for dealing with the impacts of risks traditionally considered uninsurable — such as COVID-19.
While many have viewed insurability as a binary choice with respect to a risk (i.e., insurable or uninsurable), insurability is more appropriately considered on a continuum, ranging from easy-to-insure, such as automobile or life insurance, to difficult-to-insure, such as pandemic, loss of the electrical grid, and other extreme catastrophic risks.
As explained in this article, insurance should be part of a risk management strategy to support businesses, non-profits, and local governments to address the risks they face — even if those risks are difficult to insure by traditional measures. The insurance industry can play an important role either through the continued development of ad hoc state-by-state initiatives, a private-public partnership in which the insurance industry commits its servicing capabilities, or a private-public partnership drawing on both its servicing and risk-bearing capabilities. The recent pandemic offers an opportunity to examine the role of insurance in providing protection and reducing losses from other catastrophic and systemic risks facing society today.