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

See all articles by Gustavo Cortes

Gustavo Cortes

Warrington College of Business, University of Florida

Gertjan Verdickt

KU Leuven, Department Accounting, Finance and Insurance

Date Written: April 6, 2021

Abstract

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

Suggested Citation

Cortes, Gustavo and Verdickt, Gertjan, Public Health Shocks and Product Pricing Behavior: Evidence from Life Insurance during the 1918-19 Influenza Pandemic (April 6, 2021). Available at SSRN: https://ssrn.com/abstract=3697832 or http://dx.doi.org/10.2139/ssrn.3697832

Gustavo Cortes

Warrington College of Business, University of Florida ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/directory/person/9136/

Gertjan Verdickt (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

HOME PAGE: http://www.verdickt.eu

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