The impact of the Covid-19 pandemic on the business interruption insurance demand in the United States

The article investigates the Covid-19 pandemic related changes in the demand for insurance services in the Unites States due to business interruptions by employing panel vector autoregression models to a dynamic panel data set of 50 states and District of Columbia for three periods of time: 01 January, 2004 to 28 June, 2020; 01 January, 2004 to January 21, 2020 (pre-Covid period); January 22, 2020 to June 28, 2020 (Covid-period). This paper is the first attempt to obtain estimates by applying Google Trends with a search key word Business Interruption Insurance. The data was collected and reduced to a single scale by US states within the widest possible time span. Google Trends Hits and Initial Claims for Unemployment Insurance Benefits are used as endogenous variables in the built models. In the constructed models, the impact of the exogenous variable New Covid Cases is compared with that of over US billion-dollar natural disasters. The impulse responses show a positive relationship between the Google Trends Hits and Initial Claims with the Covid-factor having a significant impact on the responses. The conducted analyses reveal that the demand for insurance services due to the Covid-19 outbreak in the United States can be expected to increase 2-6 times, with the total amount of the incurred costs for the economy due to the virus ranging from 0.3 to 7 percent of the US-2019 GDP. The results lay the foundation for recommending the insurance market participants to lobby for adoption of public-private protection schemes being able to secure a more efficient response to the pandemic-related losses that may occur in the future.

Automated summary

The study used panel vector autoregression models to analyze dynamic panel data of 50 states and the District of Columbia, finding that the demand for insurance services in the United States has changed due to the Covid-19 pandemic and is expected to increase significantly. Recommendations were made for insurance market participants to promote the adoption of public-private protection schemes to better respond to potential pandemic-related losses in the future.