Applying risk management and insurance theory to higher education: The University of Illinois pandemic insurance policy

Two colleges at the University of Illinois faced significant financial risk due to tuition revenue being concentrated among students from China and Hong Kong. In response, they designed and purchased a bespoke, multi‐year, dual‐trigger indemnity insurance policy covering tuition revenue losses from specified geopolitical and pandemic events, a risk for which no established insurance product existed. This paper documents the full lifecycle of that contract: the analysis of insurability, the iterative design of indemnity versus index structures, franchise versus conventional deductibles, and dual‐trigger architecture, the institutional frictions of public‐sector procurement and disclosure obligations, and the policy's performance when COVID‐19 triggered a claim resulting in approximately $21 million in recoveries against cumulative premiums of approximately $1.5 million. We discuss how insurance theory shaped each structural choice and compare the indemnity approach with the World Bank's Pandemic Emergency Financing Facility bonds, which employed a parametric structure active during the same event. The experience shows that seemingly uninsurable systemic risks can be rendered contractible through careful structuring.