Backstop hesitancy on Capitol Hill
Business Insurance by Nick Youngson CC BY-SA 3.0 Alpha Stock Images
During the height of the initial pandemic last year, there was serious talk about what role the insurance industry could and should play in providing protection in future pandemics, especially for business interruption. Part of the discussion included the likely need for the federal government to provide necessary backstop insurance to the industry, to guard against severe or otherwise unpredictable losses. That discussion has recently hit a brick wall.
During a U.S. Senate insurance subcommittee meeting on July 22, industry representatives and lawmakers discussed a variety of proposals that are on the table to fix the business-interruption (BI) protection gap. It appears that it may still be the right idea – but at the wrong time. Lawmakers expressed reluctance to move forward on any proposals, citing their needed focus on handling the current pandemic.
The coronavirus pandemic was declared an uninsurable risk by the insurance industry in the early days of COVID-19 last year. Today, that’s still the consensus. During testimony, estimates put capital reserves at about $850 billion for the entire U.S. property & casualty insurance sector. Compare that to monthly revenue estimates of $400 billion for the country’s small businesses and it’s readily apparent, a federal backstop is required.
The Pandemic Risk Insurance Act (PRIA) would “create a reinsurance program similar to TRIA for pandemics, by capping the total insurance losses that insurance companies would face,” according to the draft, thereby helping insurance carriers pay the claims. PRIA would cover 95% of additional losses up to $500 billion in a calendar year, with the remaining 5% being spread among private carriers. Those carriers would likewise pick up any overages above a proposed $750 billion federal backstop cap. The bill has not been scheduled for a House vote. The Senate has created a pandemic risk working group in the meantime.
Industry representatives explained their alternative, the Business Continuity Protection Program (BCPP). This non-insurance program would be managed by FEMA and pay business revenue replacement assistance to reimburse businesses up to 80% of their payroll, benefits, and expenses for three months. Chubb, Zurich North America, and Lloyds have all proposed different alternatives to handle future pandemics.
We’re still in a Catch 22. If Congress doesn’t see a groundswell of crisis in BI coverage with policyholders screaming they have no coverage, then it most likely won’t enact PRIA. Yet having the lawyers drive lawsuits that largely have been unsuccessful isn’t good for policyholders and putting insurance companies out of business isn’t good for Americans. There’s a time when the government needs to step in and just as our country threw a lifeline to the airlines and others during the initial days of this pandemic, the same should occur for insurers to provide needed coverage in future pandemics.
LMA Newsletter of 8-9-21
