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Legislation is in the works that would provide a go-forward mechanism for a federal backstop for pandemic risk insurance and could be introduced as soon as in the next 30 days, sources say.
The legislation would establish a pandemic risk insurance program, akin to the federal terrorism insurance backstop known as TRIA, they said.
A draft bill outlining the proposal has been circulated, led by House Financial Services Committee Chairwoman Maxine Waters, D-Calif., they said. The office of Chairwoman Waters did not return a call for comment.
The proposed backstop insurance mechanism could be added to later tranches of a financial aid package that Congress is negotiating, sources said.
The New York-based Risk and Insurance Management Society Inc. said Tuesday it was encouraged by the growing momentum for a federal backstop.
“It is encouraging to hear that the federal government recognizes the important role insurance and risk management can have in assisting the countless businesses that have been affected by COVID-19,” said RIMS director of government affairs Whitney Craig.
“RIMS has already reached out to congressional leaders, offering our support as they attempt to develop a strategy to address the impact of this global pandemic,” Ms. Craig said.
RIMS’ external affairs committee is “monitoring this closely and will certainly review such proposals as they are made public,” Ms. Craig said.
“There has to be a go-forward TRIA-like federal backstop for pandemics,” said Zachary Finn, clinical professor and director of the Davey Risk Management & Insurance Program, Lacy School of Business, at Butler University.
If COVID-19 turns into a “one-two punch” like the 1918 Spanish flu, this will leave businesses bankrupt, Mr. Finn said. “This country cannot take another one of these,” he said.
“Right now, and rightly so, 80% of the country is focused on emergency response, 15% focused on continuity and there’s not enough focus on restoration. Once they get the virus under control and the focus of the country shifts to how we recover and pay for this, then it’s going to be off to the races,” Mr. Finn said.
The Upton Group LLC, a Guntersville, Alabama-based insurance agency on Tuesday issued a statement supporting a federal backstop for pandemic insurance.
Such a program would “fill a void in coverage that the current worldwide pandemic has exposed in the insurance industry, which affects all businesses but is especially hard on restaurants and other small businesses,” the Upton Group said in a statement.
Since the outbreak of the pandemic, insurers and some legal experts have asserted that 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.
On March 18, some 18 members of Congress sent a letter to leaders of four property/casualty industry trade groups asking that the industry pay all business interruption claims from COVID-19.
In their response, leaders of the American Property Casualty Insurance Association, the Council of Insurance Agents and Brokers, the Independent Insurance Agents & Brokers of America, and the National Association of Mutual Insurance Companies said: “Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”
Some policyholder lawyers have disagreed and in at least one case a policyholder is seeking a declaratory ruling that its property policy covers business interruption losses related to COVID-19.
In a memo to Indiana Gov. Eric Holcomb last week, Mr. Finn said 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.”
A proposed Pandemic Risk Insurance Act “is critical for coverage exclusions for virus, communicable diseases, quarantines, government-ordered repatriation, border closings, etc.” he said.
More insurance and risk management news on the coronavirus crisis here.