Insurance demand and extreme events: Evidence from the Covid-19 pandemic

Understanding how individuals change their financial behaviour in response to large-scale extreme events is increasingly important in a world facing rising systemic risks, from pandemics to climate change. The Covid-19 pandemic offers a unique opportunity to study such behavioural responses, particularly in relation to insurance demand. Our study analyses the relationship between Covid-19 contraction and individuals’ interest to take out insurance, using representative survey data collected in Italy in 2021. We find that the direct experience of such an extreme event is positively correlated with higher interest in purchasing insurance, and the magnitude of this association increases with the severity of the event. Also, women exhibited greater sensitivity to the risky event, displaying increased insurance interest even at low event severity levels. Our results highlight how adverse external shocks are associated with changes in insurance-related behaviour. • We provide evidence on how direct exposure to extreme events, such as the Covid-19 pandemic, shapes insurance demand. • Individuals who contracted Covid-19 showed a significantly higher interest in purchasing insurance products. • The severity of the health event is positively associated with the increase in insurance interest. • Women demonstrated a heightened sensitivity to risk, showing increased insurance interest even at lower severity levels.