The risk management society (RIMS) has called for the establishment of a pandemic risk insurance program in the U.S. to accelerate economic recovery to the ongoing COVID-19 pandemic.
As the virus continues to spread the volatile and uncertain financial market environment and subsequent recessionary risks have intensified on a global basis.
Currently, the U.S. is one of the worse affected countries to the pandemic and despite recent protests, various lockdown measures remain in place across the region.
The economic challenge has already been significant and while the duration and severity of the event remains uncertain and dependent on numerous factors, the calls for the creation of some kind of federal backstop for pandemic risk have accelerated.
In a recent letter to the U.S. Department of the Treasury, Congress, and the Office of U.S. President Donald Trump, RIMS has requested the development of a pandemic risk insurance program designed to accelerate the recovery of the economy.
RIMS says that such a program, which could look similar to the Terrorism Risk Insurance Act (TRIA) established as a backstop for terror-related insurance claims, would ultimately enable greater access to capital lenders while at the same time create a viable insurance market with sufficient, affordable capacity.
The vast amount of business closures and loss of revenue across numerous industries has shone on a light on the systemic nature of pandemic risk. As with other systemic risks like terrorism and climate, the nature of pandemics means that absent public – private sector partnerships, the risk is extremely difficult to cover in an effective and affordable manner.
According to RIMS, the creation of a pandemic risk insurance program would create certainty for businesses across the country and ensure that businesses can meet future pandemics with improved resilience.
Prior to the letter, RIMS conducted a survey on U.S. risk professionals to gain some insight into their view on a pandemic insurance program. Interestingly, 91% of respondents supported a TRIA-type loss-sharing program for insurance claims related to a pandemic. While 65% said that they would be willing to pay up to 5% more in premium.
The potential for COVID-19-related business interruption losses and the subsequent legislative action in various states to force retroactive cover, continues to be a concern for the industry. 67% of respondents to the RIMS survey expect direct business interruption losses from COVID-19. Of these, 77% anticipate losses of more than $1 million, and within that group, 36% expect losses to exceed $25 million.
President of RIMS, Laura Langone, said: “From our homes and our local communities to the boardrooms of some of the world’s largest corporations, COVID-19 has highlighted the need for strong risk management strategies to address interruptions resulting from a global pandemic.
“Congress has done exceptional work by quickly introducing the CARES Act but there is still much work to be done. We look forward to the opportunity of collaborating with them to develop a sound pandemic program that instills confidence in businesses and reinvigorates the economy.”
