This article looks at COVID-19-related issues in the context of commercial and industrial insurance cover taken out against the risk of infectious disease. The focus is on government action taken and regulation passed in the U.K. and in Germany, respectively, to redress the pandemic. The insurance market offers business interruption (BI) cover (in the U.K. and internationally) as well as business closure (BC) cover (mainly in Germany) to protect against the impact of infectious diseases on commercial enterprises. The insurance law issues that came to be analysed in relation to the COVID-19 pandemic formed the subject matter of widespread litigation in both countries. Judgements were rendered in the Supreme Court in the U.K. (the FCA test case) and in the German Federal Supreme Court and now provide some authoritative legal guidance. However, the outcome of these court battles was totally different, insofar as policyholders were concerned. This article, next to offering some historical legal analysis of BI and BC insurance cover, attempts to explain why policyholders won in court in the U.K. and lost the legal argument in Germany and seeks to reconcile these diverse outcomes. The article ends with a brief outlook on how the pertinent COVID-19 insurance law issues might come to be revisited, both by the markets and in the legal community, in the context of reinsurance coverage.

The aim of this paper is to show how qualified investors in cat bonds can offer adequate pandemic business interruption protection in a comprehensive public-private coverage scheme. First, we propose a numerical model to expose how cat bonds can contribute to complement standard re/insurance by improving coverage of cedents even though risks are positively correlated during a pandemic. Second, we introduce double trigger pandemic business interruption cat bonds, which we name PBI bonds, and discuss their precise characteristics to provide efficient coverage. A first trigger should be pulled when the World Health Organization declares a Public Health Emergency of International Concern (PHEIC). The second trigger determines the payout of the bond based on the modelised business interruption losses of an industry in a country. We discuss moral hazard, basis risk, correlation and liquidity issues which are critical in the context of a pandemic. Third, we simulate the life of theoretical PBI bonds in the restaurant industry in France by using data gathered during the COVID-19 pandemic.

This study investigates the effects of economic policy uncertainty (EPU) on corporate purchases of directors and officers liability insurance from the perspective of capital market pressures. Using data on A-share Chinese listed firms from 2010 to 2021, our theoretical analysis and empirical tests reveal that higher levels of EPU increase purchases. The theoretical analysis and mediating tests reveal that capital market pressures play a mediating role in the relationship between EPU and purchases. This study also finds that the indirect ways in which EPU increases purchases consider the need for firms to mitigate litigation risks and take advantage of insurance governance. The heterogeneous analysis and tests reveal that EPU increases purchases more significantly in firms that have higher managerial agency costs, have lower corporate transparency, and are in industries with higher competition. The findings are significant for improving the risk management system in China's capital markets.

Physicians can prescribe medicines for different indications than the tested and authorised ones. Such 'off-label' uses expand therapeutic options but also create uncertainties. The COVID-19 pandemic triggered new off-label uses and, despite issues being reported in the literature, these have not resulted in substantial personal injury litigation in the EU. Against this backdrop, this article argues that civil liability plays, in fact, a limited role in off-label uses. In particular, civil liability may incentivise health actors to follow and react to the development of the evidence basis for off-label uses. However, it is ultimately unable to incentivise the conduct of additional research on off-label uses. This is problematic, as off-label research is key to protecting patients and is recommended by international medical ethics. The article concludes by critically discussing proposed mechanisms to incentivise off-label research. It argues that extending civil liability for unknown risks may have undesired effects on insurability and innovation, and most regulatory proposals seem ineffective. Building on the 2014 Italian reform of off-label uses, the article proposes the establishment of a fund financed by mandatory contributions from the industry, which should be used by pharmaceutical regulators to promote off-label research and develop guidelines for prescribers.

As of February 2023, no case has been reported in the U.K., either in the law reports or in the media, of a victim of COVID-19 suing in tort a person or organisation alleged to have caused the victim to contract the disease. This article considers the reasons this situation might have arisen. It provisionally concludes that the main legal reasons might lie in the applicable doctrines of factual causation and goes on to discuss whether uncertainty in those doctrines should be resolved in the courts.

Insurance can, as has clearly been indicated in the literature, play an important role in dealing with catastrophe risks, not only as a compensation mechanism but also as a mechanism to influence the behaviour of the insured. It is the concept known as 'insurance as governance'. However, we argue that there are limited possibilities for this role as far as the insurance of pandemics is concerned. The traditional technical tools, such as risk-based pricing, are difficult to apply. In addition, there may, ab initio, be serious problems in insuring pandemics within one of the main conditions of insurability (controlling moral hazard through an effective risk differentiation). One remedy that is traditionally applied, more particularly for natural catastrophes, is mandatory coverage. Furthermore, the capacity problem might potentially be solved through a multilayered approach in which, in addition to insurance and reinsurance, the government could also take up a role as reinsurer of last resort. That would also have the major advantage of stimulating market solution (and potentially providing incentives for the mitigation of damages), which clearly fails in a model where the government simply bails out operators. Finally, one important regulatory intervention is that insurers should be better informed than was apparently the case during the last pandemic about exactly which type of risks are covered and which are not.

This article discusses business interruption insurance as a measure of spreading risk in the context of the COVID-19 pandemic. In drawing a picture of how business interruption insurance has been handled and governed to date by courts and regulators in the U.K., Australia and the U.S., the contribution is specifically concerned with providing tentative answers to two questions: first, whether the design and interpretation of business interruption policies have made it a suitable means of spreading pandemic risks for policyholders; and second, how methods of resolving disputes over pandemic-related losses could improve the position of policyholders in relation to the insurance sector.

Pandemic-related business interruption (BI) losses are generally considered 'uninsurable' because, in order to pool sufficient premium revenue to meet valid claims, premiums would be unaffordable for the majority of policyholders. This paper explores whether and how such losses might be made insurable in the U.K. The authors consider post-pandemic governmental responses, including the role of the Financial Conduct Authority (FCA) and the meaning and implications of ([2021] UKSC 1). The central premise of the paper is to highlight the importance of reinsurance in increasing an underwriter's insuring capacity and to illustrate how, with the support of government in the form of a public-private partnership (PPP), 'uninsurable' risks of this type may be made insurable. The authors propose a PPP, 'Pandemic Business Interruption Re', which provides, in their view, a feasible and defensible solution that would confer the benefit of increasing policyholders' faith in the industry's ability to underwrite pandemic-related BI claims and reduce reliance on ex post government aid.

The COVID-19 pandemic continues to present new challenges at the frontiers of social risk. Its significant societal impact has prompted the consideration of alternative frameworks like compensation funds to better allocate the risks and impacts of COVID-related injury. Although there has been discussion about the potential of alternative liability structures for vaccine-related injury, there has been less analysis of the right way to compensate other types of injury, such as long-term illness, disability and death, associated with the SARS-CoV-2 virus. In France, a universal compensation fund for COVID-19-related injuries, designed similarly to asbestos-related schemes, was considered by the parliament. With an eye on scientific knowledge of the best practice in the development and operation of compensation frameworks, this paper analyses the design of such funds in Europe as applied to COVID-19 injury and considers the position of compensation funds in relation to tort law, private insurance and social security models.

The COVID-19-driven stock market crash in early 2020, as well as the recession following the financial crisis, generated sizeable operating losses for property-liability insurance companies. However, property-liability insurers were able to hold their capitalisation levels relatively stable during both recessions, issuing new capital and reducing dividends. We use these two recent recessions to empirically examine the determinants and consequences of capital issuances by property-liability insurance companies. We find that property-liability insurers raise capital to restore depleted levels due to operating losses and to fund business growth, and these determinants do not change during recessions. We further examine whether capitalisation levels constrain insurers' ability to meet demand during recessions and find no evidence this occurs. We rather find that new capital is associated with premium growth in subsequent time periods. There seem to be fewer frictions affecting property-liability insurers to recapitalise and accommodate demand compared to other financial services firms.

This paper investigates the institutional determinants of insurance demand in Africa. We used a panel of 42 countries over the period 1996-2017. A system GMM approach was used for the estimations. Consistent with previous results, we find that institutional quality has positive and significant effects on insurance penetration in Africa. Specifically, regulatory quality, rule of law, control of corruption, political stability and absence of violence, and government effectiveness are the five institutional quality indicators that have positive and significant effects on the demand for total insurance and life insurance. However, only regulatory quality, control of corruption and government effectiveness are positively associated with non-life insurance demand. This indicates that governments should improve the business environment and strengthen the political environment to boost insurance development in Africa.

We investigate the impact of new financial and economic determinants on life insurance demand for 29 OECD countries for the period 2005-2017 while controlling for a set of widely used socio-demographic and economic characteristics. Based on a panel smooth transition regression model, we find a regime-switching effect characterising the impact of bank concentration and interest rate on the size of the life insurance market, in light of the old-age dependency ratio as the threshold variable. We also show that life insurance development is boosted in countries with high scores for investment freedom and with high levels of foreign direct investment rates, regardless of the level of the old-age dependency ratio. The impact of GDP per capita on the demand for life insurance products is positive and statistically significant, regardless of the level of the threshold variable.

This paper tests potential determinants of the development of the insurance sector. Using a rich dataset for 24 European countries spanning two decades, we identify a set of macrofinancial factors that are the most robust predictors of growth of gross premiums in the life and non-life insurance sectors. We show that both life and non-life premiums co-move with the business cycle and are positively related to higher savings and a more developed financial system. In addition, we provide new evidence on the role of market concentration and price effects. We find that market concentration matters only for life insurance, whereas the price channel is significant only for non-life insurance. From a policy perspective, our empirical estimates can be used to refine the existing macroprudential stress tests of the insurance sector.

Cyber incidents are among the most critical business risks for organisations and can lead to large financial losses. However, previous research on loss modelling is based on unassured data sources because the representativeness and completeness of op-risk databases cannot be assured. Moreover, there is a lack of modelling approaches that focus on the tail behaviour and adequately account for extreme losses. In this paper, we introduce a novel 'tempered' generalised extreme value (GEV) approach. Based on a stratified random sample of 5000 interviewed German organisations, we model different loss distributions and compare them to our empirical data using graphical analysis and goodness-of-fit tests. We differentiate various subsamples (industry, size, attack type, loss type) and find our modified GEV outperforms other distributions, such as the lognormal and Weibull distributions. Finally, we calculate losses for the German economy, present application examples, derive implications as well as discuss the comparison of loss estimates in the literature.

Cybercrime is estimated to have cost the global economy just under USD 1 trillion in 2020, indicating an increase of more than 50% since 2018. With the average cyber insurance claim rising from USD 145,000 in 2019 to USD 359,000 in 2020, there is a growing necessity for better cyber information sources, standardised databases, mandatory reporting and public awareness. This research analyses the extant academic and industry literature on cybersecurity and cyber risk management with a particular focus on data availability. From a preliminary search resulting in 5219 cyber peer-reviewed studies, the application of the systematic methodology resulted in 79 unique datasets. We posit that the lack of available data on cyber risk poses a serious problem for stakeholders seeking to tackle this issue. In particular, we identify a lacuna in open databases that undermine collective endeavours to better manage this set of risks. The resulting data evaluation and categorisation will support cybersecurity researchers and the insurance industry in their efforts to comprehend, metricise and manage cyber risks.

While some consider open insurance to be a buzzword with more hype than substance, the underlying trend of open finance stimulates insurers to use digital technology to exchange data with third parties to realise process efficiencies and develop new products and channels. Based on a literature review and 30 interviews with industry experts in Europe, we define open insurance, identify its key drivers, and discuss the dimensions and performance impact of open insurance strategy. The combined insights can help executives develop a better understanding of open insurance and formulate an open insurance strategy that provides performance benefits to them, customers, and third parties.

In this paper we focus on model risk and risk sensitivity when addressing the insurability of cyber risk. The standard statistical approaches to assessment of insurability and potential mispricing are enhanced in several aspects involving consideration of model risk. Model risk can arise from model uncertainty and parameter uncertainty. We demonstrate how to quantify the effect of model risk in this analysis by incorporating various robust estimators for key model parameters that apply in both marginal and joint cyber risk loss process modelling. Through this analysis we are able to address the question that, to the best of our knowledge, no other study has investigated in the context of cyber risk: is model risk present in cyber risk data, and how does is it translate into premium mispricing? We believe our findings should complement existing studies seeking to explore the insurability of cyber losses.

As the cyber insurance market is expanding and cyber insurance policies continue to mature, the potential of including pre-incident and post-incident services into cyber policies is being recognised by insurers and insurance buyers. This work addresses the question of how such services should be priced from the insurer's viewpoint, i.e. under which conditions it is rational for a profit-maximising, risk-neutral or risk-averse insurer to share the costs of providing risk mitigation services. The interaction between insurance buyer and seller is modelled as a Stackelberg game, where both parties use distortion risk measures to model their individual risk aversion. After linking the notions of pre-incident and post-incident services to the concepts of self-protection and self-insurance, we show that when pricing a single contract, the insurer would always shift the full cost of self-protection services to the insured; however, this does not generally hold for the pricing of self-insurance services or when taking a portfolio viewpoint. We illustrate the latter statement using toy examples of risks with dependence mechanisms representative in the cyber context.

Long-term care (LTC) is not only a concern for elderly individuals but also for their adult children, as the latter often provide financial support and informal care to their elderly dependents. Adult children may therefore have strong incentives to have their parents purchase LTC insurance. Using data from a 2019 Swiss survey, this article first identifies a set of variables, including self-reported interest about LTC insurance, whether elderly parents live with their children and if the latter have provided informal help with personal care, which help predict the interest of adult children in having their parents covered against LTC risk. Second, it investigates the main characteristics of children's motives for influencing their parents to purchase LTC insurance, which are classified as either altruistic, i.e. related to parental well-being, or self-interested, i.e. related to the child's well-being. The results offer valuable insights for both policymakers and insurers when designing public LTC policies and LTC insurance products.

The increasing threat of cyberattacks has resulted in increased efforts by both the U.K. government and regulatory authorities to coordinate efforts to influence cybersecurity risk management practices in the U.K. insurance sector, focusing on cyber risk underwriters. This paper provides an evaluation of these arrangements. It first provides a descriptive overview of the key U.K. regulatory authorities and the evolution of their efforts over the past decade, as well as the scope for broader collaborations with industry and member-based associations and international organisations. It then evaluates the effectiveness of these efforts by providing a multi-method study of the incidence, nature and evolution of cost of data breaches, investment in computer systems and software intangible assets at risk of cyberattack, and a content analysis of annual reports of both U.K. regulators and a sample of U.K. insurers. The findings suggest that while both the total costs of data breaches and the size of investment in computer systems and software intangibles at risk of cyberattack have gradually increased over time, the degree of engagement with cyber as a reporting issue by both cyber insurers and financial regulators has not. It is concluded that while these efforts have been apparently successful in avoiding a large-scale, systemic cyberattack on the U.K. insurance industry, there are significant gaps and overlaps in the system of cyber regulatory oversight.