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Rep. Carolyn Maloney, D-N.Y., a senior member of the House Financial Services Committee, late Tuesday officially introduced legislation to establish a federal pandemic risk reinsurance program and said an alternative plan backed by some insurers was unlikely to be passed.
H.R. 7011, the Pandemic Risk Insurance Act of 2020, would establish a federal backstop for business interruption, including event cancellation losses resulting from a future pandemic or public health emergency from Jan. 1, 2021.
The program would be triggered when insurance industry losses exceed a $250 million threshold, with the aggregate annual total capped at $750 billion. Insurer participation in the program would be voluntary.
Because business owner insurance policies explicitly exclude pandemics, small businesses, including mom and pop stores, retailers and others are being denied claims from their insurers and have been “left out in the cold,” Rep. Maloney said at a virtual press conference.
These denials increase the likelihood that they will never be able to financially recover from the coronavirus crisis, she said.
“We all recognize that pandemics are unique, and the economic effects of pandemics can be devastating. Without a government backstop for this insurance, it’s not clear that insurers would or could cover pandemics,” Rep. Maloney said during the news conference.
With a backstop the insurance industry will have “more certainty and will be able to safely underwrite this unique risk,” Rep. Maloney said.
Introduction of the bill follows an alternative taxpayer-funded backstop proposal announced last week by three major insurance trade groups.
“That’s not going to pass,” Rep. Maloney said during the news conference. “I welcome industry agreement that pandemic risk insurance is a viable, actuarially sound product. Let’s get to the table and start talking.”
Like the Terrorism Risk Insurance Act that was enacted after the 9/11 terrorist attacks, under PRIA, the federal government would act as a backstop to maintain marketplace stability.
After the terrorism attacks on 9/11, the economy completely shut down and construction came to a halt because insurers wouldn’t insure any properties against terrorist attack, Rep. Maloney said.
“You couldn’t even insure a hotdog stand. The only place we could get insurance was at Lloyd’s of London and that was terribly expensive.” That was until Congress came together to pass TRIA.
Similarly, PRIA would solve a market failure by allowing companies to buy business interruption insurance that covers pandemics, so that “they can stay in business” and keep their staff employed when “they are forced to close for public health emergencies,” she said.
Rep. Maloney said the plan, which would see the federal government pick up 95% of losses after an industry deductible of 5%, has the support of more than two dozen national business and trade associations, as well as several major insurers including insurance brokerage Marsh & McLennan Cos. Inc.
“Retail sales and jobs have been devastated by the pandemic. This is not only a public health crisis, but it is a dire economic crisis,” Leon Buck, vice president for government relations at the National Retail Federation, said during the briefing.
The NRF estimates that retailers will lose $730 billion in sales during the first three months of the pandemic and $1.5 trillion over 12 months, Mr. Buck said.
“When businesses couldn’t obtain coverage for acts of terrorism after 9/11, Congress stepped in. It is time for Washington to do the same for pandemics. At this point, it’s virtually impossible to obtain pandemic coverage for the future,” Mr. Buck said.
In addition to the National Retail Federation, representatives of the U.S. Travel Association and Nonprofit New York were present at the conference.
More insurance and risk management news on the coronavirus crisis here.
A government pandemic backstop could benefit the captive insurance sector, though much will depend on the structure of any plan, experts say.