Side effects of the pandemic: impacts on the business interruption insurance market

Abstract The aim of this article was to analyze the underwriting dynamics and coverage extent in business interruption insurance, investigating the probability updating process during the pandemic. While the impact of the pandemic on the business insurance market in Brazil has not been quantified, this study fills that gap by identifying the pandemic’s effects on the business interruption line of business (LOB) and highlighting any policy reformulations. The relevance of this paper is examining how the insurance market perceives and reacts to unpredictable exogenous events, and offering insights into the behavior of economic agents under these conditions. The findings reveal that the pandemic significantly impacted the insurance market, particularly the business interruption LOB. This research provides behavioral evidence that could inform responses to future unexpected adverse events in the insurance sector. We used a two-stage panel data regressions, using official data from the Brazilian insurance market covering Jan/2003-Dec/2023, with a total of 25,333 observations from 180 insurers. The impact of the pandemic on underwriting decisions, premium collection, and claims within business interruption and other LOBs was estimated. During the pandemic, operations in the business interruption LOB and premium revenues showed a gradual decline. Initially, there was a 0.60% increase in claim payments, followed by a stabilization period. The pandemic’s impact on the business interruption insurance market deviated from the overall insurance market trend. Evidence of the probability updating phenomenon was observed within this industry.