Recently, there has been a lot of talk regarding the impact the Covid-19 pandemic has had on businesses and whether or not business interruption coverage should be triggered within a policy. To get right to the point, pandemics are not insurable. For a risk to be insurable, there are ideally six characteristics that should be met:
1) The loss must be determinable and measurable
2) The loss must be accidental and unintentional
3) There must be a large number of exposure units
4) The loss should not be catastrophic
5) The chance of loss must be calculable
6) The premium must be economically feasible
Other than #2 above, the loss must be accidental and unintentional, pandemics fail to meet any of the other characteristics to be an insurable loss.
There are only a nominal number of exposure units because pandemics do not happen every year, and typically there are decades between each occurrence.
Pandemic losses are considered catastrophic losses; therefore, they aren’t determinable, neither measurable.
There is no way to calculate the chance of a pandemic as it is a sporadic event that only happened a handful of times in recent history.
Last but not least, the premium would not be economically feasible since insurance companies would need to charge an exorbitant premium for minimal coverage as ultimately, the losses would impact them all at once and be catastrophic .