Epidemic risk and insurance coverage

Abstract

AbstractIn this paper we aim to apply simple actuarial methods to build an insurance plan protecting against an epidemic risk in a population. The studied model is an extended SIR epidemic in which the removal and infection rates may depend on the number of registered removals. The costs due to the epidemic are measured through the expected epidemic size and infectivity time. The premiums received during the epidemic outbreak are measured through the expected susceptibility time. Using martingale arguments, a method by recursion is developed to calculate the cost components and the corresponding premium levels in this extended epidemic model. Some numerical examples illustrate the effect of removals and the premium calculation in an insurance plan.