Public Health Shocks and Product Pricing Behavior: Evidence from Life Insurance during the 1918-19 Influenza Pandemic
21 Pages Posted: 26 Sep 2020 Last revised: 6 Apr 2021
Date Written: April 6, 2021
We uncover a new channel through which systematic health shocks affect a firm’s pricing behavior. Using a novel, hand-collected dataset of US life insurers during the Influenza Pandemic of 1918-19, we find that more-affected firms charge higher prices on new policies relative to less-affected firms. Since the pandemic increased mortality rates among younger adults, we argue that insurers use product pricing as a risk management mechanism to mitigate the probability of financial distress. This finding persists even accounting for other financial frictions. Critically, public health shocks impact an insurer’s exit and entry decisions and increase the sector’s fragility.
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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