Public Health Crises, Product Pricing, and Risk Management: U.S. Life Insurance during the 1918–19 Influenza Pandemic
36 Pages Posted: 26 Sep 2020 Last revised: 30 Aug 2021
Date Written: August 29, 2021
Using a novel, hand-collected dataset of U.S. life insurance companies during the Influenza Pandemic of 1918–19, we show that high-exposure firms charged higher prices on new policies vis-à-vis less exposed firms. Since the pandemic surprisingly increased mortality rates among young adults, we argue that insurers used product pricing as a risk management tool to mitigate the probability of financial distress. Consistent with this channel, health shocks significantly impact firms’ exit and entry decisions depending on a state’s exposure to the disease. Finally, we show that competing explanations for the observed price differences find little support from the data.
Keywords: Spanish Flu Pandemic, 1918–19 Influenza, Life insurance firms, COVID-19
JEL Classification: N11, N12, N21, N22, N81, N82, G22, G52
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