Some Chinese insurance companies are taking a big chance on the possible spread of avian influenza among humans as an opportunity to expand their business. Beijing Minsheng Life Insurance on November 7th was first to launch a policy that would pay the insured if they are infected by the H5N1 virus. Four days later, Shenzhen based Hua-an Property Insurance followed. The Hua’an policy costs 100 yuan for each 200,000 yuan of compensation. It is valid for a year for anyone aged 3 to 70. Analysts say the odds are that the two insurers will make money given what they consider is the low probability of a serious pandemic.
SimonWorld comments. In my view, the business model captures pure profit. If avian flu kills many humans, the company would in any case go bankrupt. In the meantime it rakes in cash from "positive selection," which is the opposite of adverse selection. Often the people who buy insurance are the super-safe ninnies, afraid they might not do something they were supposed to. On the other hand, if you are still a chicken culler in China, you are probaby somewhat reckless, or too poor to buy life insurance.