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Risk professionals call for federal pandemic backstop

Posted On: Sep. 11, 2020 10:01 AM CST

pandemic plan

Businesses and risk management professionals are continuing to struggle to manage the complexities of the COVID-19 pandemic as many existing insurance policies fail to cover its impact, a leading risk manager for a restaurant chain said Thursday.

The comments came during a virtual discussion on the need for a public/private program to manage pandemic risk insurance hosted by Rep. Carolyn B. Maloney (D-New York), a senior member of the House Financial Services Committee.

The Risk and Insurance Management Society Inc. does not agree with those who say that pandemics are not insurable, said Patrick Sterling, head of risk management for Texas Roadhouse, a Louisville, Kentucky-based restaurant chain, and a member of the RIMS board of directors.

“As a united front, carriers and the federal government can develop a solution to share the financial risk of future pandemics,” Mr. Sterling said.

Since March, insurers have excluded from coverage for the film industry any loss caused by “communicable disease,” said Jean Prewitt, president and CEO of the Independent Film & Television Alliance.

“We need support from government to create the incentive for the private insurance sector to resume writing the necessary insurance for the film industry at commercially reasonable rates and to allow film and television production to move forward in the U.S.,” Ms. Prewitt said.

A wide swath of businesses have been struggling to deal with the economic challenges posed by the pandemic and the associated government-ordered business shutdowns, said Scott Sinder, chief legal counsel of the Council of Insurance Agents and Brokers.

“There was little to no insurance available pre-crisis to cover the associated economic losses,” he said.

If there is a next time, a mechanism needs to be in place to minimize economic disruption and to compensate businesses for the associated losses, Mr. Sinder said.

The commercial insurance market cannot fully provide businesses with the protection they need from the enormous costs of pandemics, said Tarique Nageer, terrorism placement advisory and leader, property practice, at Marsh & McLennan Cos Inc.

“Only the credit and power of the U.S. government can help create the necessary risk program to harness the financial and social benefits of insurance to mitigate pandemic-related economic losses,” Mr. Nageer said.

But the insurance industry has a role to play, too, he added.

While the federal government must take on the “lion’s share” of the risk, the private insurance industry can and should take on some of that risk, said Joe Wayland, executive vice president and general counsel, Chubb Group.

A multilayered approach is required to create “a scaffold” that the private insurance industry can build on, said Robert Gordon, senior vice president, policy, research and international, at the American Property Casualty Insurance Association.

Such an approach would include an affordable base layer of coverage fully funded by the federal government, and a public-private partnership providing additional coverage to businesses, Mr. Gordon said.

The Pandemic Risk Insurance Act of 2020, introduced by Rep. Maloney in May, and modeled after the Terrorism Risk Insurance Act would provide a framework for insurers to offer business interruption insurance policies that cover pandemics, creating a reinsurance program with a federal backstop.  

“There is broad consensus that we need a program like the one created by PRIA,” Rep. Maloney said during the discussion.

“A forward-looking public-private partnership like this one, supported by a federal backstop, will help businesses keep their employees on payroll and weather the storm that a public health emergency brings,” Rep. Maloney said.

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