MERS Insurance? A Policymaker’s Tool for Calming Disaster-Related Panic

July 2nd, 2015

By CHHS Research Assistant Jules Szanton

When a country or region is struck by a natural disaster, act of terror, or disease outbreak, it isn’t long until an economic threat rears its head: declining tourist visits.

In an era when news travels quickly and tourists have choices, areas that have suffered from high-profile disasters frequently find their tourism industries devastated. Even if the level of risk is objectively low, tourists can be scared to travel whether out of fear of a recurrence or disappointment over the potential quality of their visit.

That’s the situation facing South Korea, as the country has been battling an outbreak of Middle Eastern Respiratory Syndrome (MERS) since early May.  To be sure, the outbreak is serious. Yet an individual’s odds of being infected remain slim.  The World Health Organization (WHO) has not recommended restrictions on visiting South Korea, as a pop-up advertisement eagerly tells visitors to Korea’s official tourism website.  In fact, experts worry that the public panic about the MERS outbreak is proving more damaging to South Korea than the outbreak itself.  Tourists are part of the panic: arrivals are down by almost 25%, further devastating Korea’s already MERS-battered economy.

To encourage visitors to put aside their anxieties and visit the country, South Korean authorities are offering an economic incentive: “MERS insurance.”  The Korean government will pick up  all of a visitor’s medical and travel expenses if he or she is infected while in the country.  The offer is prominently featured on the Korean tourism website.

This sort of government subsidy to encourage tourism in the wake of a disaster is a common tool considered by policymakers.  It reflects the fact that an area suffering from a disease outbreak, natural disaster, or act of terrorism is scarcely able to afford the economic cost of a tourism slump, and is sometimes willing to offer subsidies to keep tourists coming.  Yet policymakers are often reluctant to offer the subsidies—perhaps out of a belief that boosting tourism should not be a top priority in responding to a disaster.

In a few cases, tourism subsidies in the wake of a disaster have been adopted by affected countries, while in others they were eventually rejected:

  • In the wake of the 2011 Fukushima nuclear disaster, tourist visits to Japan plummeted. Japan considered offering free or subsidized tourist flights to the country, and even announced a program to offer 10,000 free flights to the country.   Ultimately, the Japanese government cancelled the program after voicing concerns that it would be insensitive to give foreign tourists a free vacation as thousands of Japanese remained displaced by the disaster.
  • In the wake of the September 11, 2001 terror attacks, the American tourism industry slumped as many passengers were unwilling to fly on airplanes. The air travel industry was hit particularly hard.  To boost tourism in general—and air travel in particular—Congress sent an $11 billion aid package to the airline industry which allowed carriers to hold down fares even as fewer passengers bought seats.  (The aid also helped improve security.)
  • Last year as ethnic unrest in terrorism in the majority-Muslim province of Xinjiang resulted in reduced tourism, the Chinese government announced that it would give 500 yuan (roughly $80) to tourists who visited the remote western province. The offer was aimed at Chinese tourists, who had been scared away by reports of terrorism.

A paper by a pair of business professors at Nottingham University suggests that tourist insurance in the wake of a disaster can make economic sense.  The paper examined subsidies given to American Airlines in the wake of the 9/11 attacks, and found that the program generated $3.10 in GDP gains for every dollar in subsidies given to the airlines.  The subsidies stimulated the moribund airline industry which in turn saved a large number of jobs in the transportation, tourism, and hospitality industries.

This is not to say that MERS insurance is guaranteed to work for South Korea.  Particularly since the subsidy is only offered to people who are actually infected by the disease, the program differs from the subsidies given by the United States and the Xinjiang Province.  Yet subsidizing a tourism industry remains an enticing tool for a country or region recovering from a disaster.

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