The creation of a Federal Pandemic Risk Reinsurance Program, designed to cover insured losses arising from public health emergencies, is reportedly progressing in the U.S.
Currently in discussion draft form, the Pandemic Risk Insurance Act of 2020 would develop the new reinsurance program in order to provide a “transparent system of shared public and private compensation for business interruption losses resulting from a pandemic or outbreak of communicative disease.”
The new bill, which is being led by House Financial Services Committee Chair, Maxine Waters, is in response to legislation being considered in numerous states that would force insurers to retroactively cover business interruption losses driven by the impacts of the COVID-19 outbreak, regardless of the ISO virus exclusion.
The industry has responded negatively to efforts by lawmakers to force such coverage, warning of industry-wide instability at a time when it is needed most.
In its current form, the structure of the federal backstop would look similar to the Terrorism Risk Insurance Program (TRIP) that was established in the aftermath of the 9/11 terror attacks, and which has been reauthorised a number of times.
Of course, this all remains subject to change as the bill is debated and progresses, but currently, the reinsurance program would be triggered when industry losses exceed $250 million and aggregate losses are capped at $500 billion annually, for insurers and the government.
It’s understood that participation in the program would be voluntary and those that elect to join to program would pay a premium for the reinsurance protection, which would be placed into a Pandemic Risk Reinsurance Fund that would be maintained by Treasury to pay insured losses, and also costs of administering the reinsurance program.
Furthermore, details of the draft bill show that participating insurers would be required to make coverage available in all of its business interruption policies.
Development of the legislation appears to be moving forward, and industry reports suggest that it could even be put before the US House of Representatives as early as April.
The U.S. has been hit hard by the impacts of the COVID-19 pandemic, both in terms of the number of lives lost and also in terms of the economic fallout. Of course, the pandemic is ongoing and only time will tell just how costly the virus outbreak will be for insurers, reinsurers, and governments from around the world.
As highlighted by the results of our recent COVID-19 reinsurance market survey, the business interruption issue is clearly a concern for the marketplace. And, when you consider the potential costs of forcing retroactive claims payments, as discussed recently by the American Property Casualty Insurance Association (APCIA), it’s easy to see why.
President Trump, in his daily press briefing on April 10th, 2020, highlighted the issue of P&C insurer pushback regarding business interruption claims, suggesting that companies should foot the bill where pandemic risk clearly wasn’t excluded.
As well as unexpected claims, forcing insurers to cover losses in this way could set a dangerous precedent moving forward, and, at the same time, inhibits the ability of insurers to pay valid claims from other events, such as natural disasters.