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Unfortunately, pandemic insurance is unlikely to work in the real world. A pandemic by definition affects the entire globe, meaning that if pandemic insurance needs to pay out, it will have to pay out for all policy holders, all at once. Given that the business model of insurance companies is to spread risk across all policy holders, it is impossible for insurance companies to payout all policies all at once.

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Not to mention the fact that pricing pandemic insurance is going to be very hard. Insurance companies generally don't like to take risks... they like things that are highly predictable and can be modeled. The percentage of people aged 40 who will die in a given year is predictable. So are the chances of car accidents by 17 year old female drivers. When the next pandemic will come is anyone's guess though. And lacking a decent way to model a risk like this, the insurance company will inevitably need to charge a high premium to make this a worthwhile product. Meanwhile, consumers will balk at the high premium and not buy the coverage.

Yet the models exist and are routinely used to evaluate and price that risk.

It does work in the real world. It is a risk that is covered by insurers and reinsurers as well as capital market investors. The World Bank’s pandemic bond paid-out in response to the Covid-19 event as it was designed to (that bond was criticized for its effectiveness, but had nothing to do with the actual cover it provided and its mechanics).

‘Excess’ or ‘Extreme’ mortality risk is a risk that life insurers accumulate and naturally seek reinsurance for. There is a market for it.

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