Parametric pandemic insurance

Parametric pandemic insurance pays an agreed sum as soon as an epidemic index crosses a threshold, with no loss adjustment. The benchmark is the World Bank's. The PEF facility, launched in June 2017, tied 320 million dollars of bonds to triggers combining cases, deaths, growth rate and spread across several countries. It paid out roughly 196 million dollars in April 2020, weeks after Covid-19 had already overwhelmed health systems. Corporate buyers were offered the same design. In May 2018, a broker, a reinsurer and the epidemiological modeler Metabiota launched cover for revenue loss from an outbreak, with triggers based on mortality, border closures or a public fear index. Very few policies had been bound before 2020. For the underwriter, everything rides on the index definition. Data from the WHO or a national authority is hard to dispute, but it arrives late and depends on the country's testing capacity. Basis risk is heavy: a hotel can lose 60% of its revenue without the index moving, and the reverse happens too. Accumulation weighs even more, since a pandemic hits every insured in the same year, which is why the risk ends up with capital markets and governments. Not to be confused with the communicable disease exclusion, which strips this risk out of standard property policies.