It does work in the real world. It is a risk that is covered by insurers and reinsurers as well as capital market investors. The World Bank’s pandemic bond paid-out in response to the Covid-19 event as it was designed to (that bond was criticized for its effectiveness, but had nothing to do with the actual cover it provided and its mechanics).

‘Excess’ or ‘Extreme’ mortality risk is a risk that life insurers accumulate and naturally seek reinsurance for. There is a market for it.