Financial Resilience to Pandemics through Social Reinsurance: Application to COVID-19

The crisis caused by COVID-19 revealed the global unpreparedness to handle the impact of a pandemic. At the outbreak of a pandemic, time is the key variable that can save lives and reduce financial losses. In the present paper, we propose, as a risk transfer tool, a reinsurance product mainly for developing countries, based on a parametric insurance design, that can supplement a state's social insurance during a pandemic. The key feature of the proposed social reinsurance is a conditional payout function: the trigger provides guaranteed and immediate financing at the onset of a pandemic, while the cap links further payments to infection dynamics and the effectiveness of government measures. This two-step structure offers a win-win outcome, by delivering unconditional early support consistent with insurance principles, while at the same time incentivising proactive risk management and addressing market concerns over moral hazard. We develop the cap-curve concept as a benchmark mechanism that can be constructed from pooled early-wave infection-speed profiles across comparable countries or regions, and used to assess whether subsequent payouts remain justified. We illustrate the approach by exploring different trigger candidates and by constructing anonymised benchmark and policyholder infection-speed curves calibrated on early COVID-19 dynamics. Any numerical illustrations are intended to demonstrate contract mechanics rather than provide implementable market pricing.