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No consensus on need for federal coronavirus ‘backstop’


As some U.S. lawmakers move to force insurers to cover business interruption losses arising from COVID-19, there was no consensus Thursday on whether a federal backstop for pandemic losses is needed.

While a program akin to the federal terrorism insurance backstop known as TRIA is unlikely, the $850 billion financial aid package Congress passed is acting as a backstop to the national economy, some observers say.

Bob Rusbuldt, president and CEO of the Alexandria, Virginia-based Independent Insurance Agents and Brokers of America Inc., said: “The government is moving rapidly to treat this as a national emergency just as they did after 9/11.”

“I don’t think it will be anything like a TRIA program, but I think you will see financial assistance that will help businesses and individuals pay bills, and part of that will be insurance premiums,” Mr. Rusbuldt said.

While there is a vested interest in keeping businesses open and paying insurance premiums, the Big-I is not calling for a federal backstop program to be put in place, he said.

“We are not pushing that or even talking about that,” Mr. Rusbuldt said.

The government is already acting as a backstop to the national economy ,and it’s already moved in that direction through a number of pieces of legislation, said Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia.

“There has been discussion of as much as $1 trillion of economic relief. This would come in the form of direct payments to households as well as businesses,” he said.

There is a distinction between the role of government standing behind a specific cause of loss as was the case in 9/11 versus “the government providing broad economic support which is what we’re seeing right now,” Mr. Hartwig said.

“With 9/11 we clearly had physical damage destruction with the threat of more,” he said.

“9/11 caused the collapse of much of the property and property reinsurance market in the wake of that event. The federal government stepped in to provide a backstop which created assurances for commercial insurers and reinsurers so that they could confidently step back into this marketplace,” he said.

However, in the case of COVID-19, there’s “no disruption in the insurance markets here,” he said. “There’s no disruption in p/c, life or health insurance markets today as a result of the COVID-19 pandemic,” Mr. Hartwig said.

The comments came as a professor at Butler University in Indianapolis called for the creation of a federal pandemic insurance backstop in a memo sent Wednesday to Indiana Gov. Eric Holcomb.

Zachary Finn, clinical professor and director of the Davey Risk Management & Insurance Program, Lacy School of Business, at Butler University, said in the memo that an orderly backstop is “immediately required” because “a pandemic is like terrorism in that the severity is too high and probability too incalculable to be (re)insurable.”

“This is the world’s largest business interruption claim,” Mr. Finn told Business Insurance.

“It needs to be adjusted exactly like a business interruption claim, and we already designed a structure to be able to do that through TRIA so why recreate the wheel. If everyone is going to talk about how this is a 9/11 or potentially a worst-level event then let’s just do it.”

The memo stated that a proposed Pandemic Risk Insurance Act “is critical for coverage exclusions for virus, communicable diseases, quarantines, government-ordered repatriation, border closings, etc.”

“We need a pre-funded risk pool available that’s fair, organized and underwritten. We need the government to be the bank with others’ premiums, not necessarily taxpayer money,” Mr. Finn wrote in the memo.

Butler University has $10 million of uninsured business interruption losses as a result of COVID-19, and the broader economic fallout will be significant, he told Business Insurance.

Meanwhile, the National Association of Mutual Insurance Companies on Thursday said it is monitoring states closely to “ascertain any appetites to develop bad public policy situations in a misguided attempt to address COVID-19 impacts.”

The statement from the Indianapolis-based organization was in response to the introduction of a bill earlier this week by New Jersey lawmakers that would have forced insurers to pay business interruption losses due to COVID-19.

The bill, which was later quashed, would have mandated “every policy of insurance insuring against loss or damage to property, which includes the loss of use and occupancy and business interruption in force in this State on the effective date of this act, shall be construed to include among the covered perils under that policy, coverage for business interruption due to global virus transmission or pandemic,” NAMIC said.

Currently, viruses, pandemics and contagious/infectious diseases such as COVID-19 are generally excluded from standard form commercial property policies. Policies also require direct physical loss to property for coverage to kick in.

But it’s possible that insurance policy wordings related to pandemics or viruses could change going forward in light of the disruption to businesses caused by the COVID-19 outbreak, experts say.

“Whether that should be a change or not – you could make an argument on both sides. Maybe that will be a change going forward. Obviously, you would see premiums go up significantly for that kind of coverage,” Mr. Rusbuldt said.

The Insurance Services Office Inc., part of Verisk Analytics Inc., based in Jersey City, New Jersey, recently said it had developed, but not yet filed with regulators, drafts of two advisory endorsements that can provide limited coverage for business interruption caused by certain actions of civil authorities taken to avoid infection by coronavirus, or to limit its spread. 

The American Association of Insurance Services Inc’s commercial lines, inland marine, businessowners and commercial property programs “all contain virus or bacteria exclusions either within endorsements or within the coverage forms themselves,” said Nicole D. Milos, assistance counsel at the AAIS based in Lisle, Illinois.

“The … exclusionary language has been in existence for 15 years, so it’s not new phrase, or new terminology,” Ms. Milos said.

Those policy provisions and endorsements are going to be subject to scrutiny going forward, she said.

“From a larger perspective I expect moving forward the insurers and organizations like mine are going to take a hard look at the physical loss or damage requirements for coverage within policies and whether an event such as this would qualify as a covered peril pursuant to the need for the requirement for physical loss or damage,” Ms. Milos said.

In various jurisdictions there have been findings that the availability of contamination from an illness doesn’t quality as a physical loss or damage, she said.

“Depending upon the jurisdiction those views may change, and we may have to adapt accordingly,” Ms. Milos said.

More insurance and risk management news on the coronavirus crisis here.