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Viewpoint: Time to revisit backstop


It’s hard to believe it’s been 20 years since the catastrophic events of Sept. 11, 2001. As with many who were living and working in Manhattan that day, there are certain sights, sounds and smells that prompt memories of that Tuesday. Any bright, sunny early fall morning is one, missing-people posters is another, the sound of a jet engine flying low overhead and any particularly acrid smoke blowing in the air are others. The personal accounts of the five executives interviewed for Business Insurance’s cover story go to the heart of 9/11 and the human losses the insurance industry suffered. There are also memories of people helping each other even as they were in imminent danger, of people coming together and finding support — and of the industry adapting and recovering in the years since.

As is usually the case following major catastrophes, 9/11 led to fundamental changes in the way insurers and risk managers operate and in particular how terrorism risk is modeled and priced. For example, workers compensation insurers began to think about whether a business’s operations were located in a potential terrorist target area, and about aggregations of risk if a catastrophic event were to hit multiple industries. For property insurers, where before 9/11 terrorism risk was covered in most property policies, the magnitude of the losses arising from the event and the potential for future attacks led them to introduce exclusions for terrorism coverage until the government stepped in to create a backstop — the Terrorism Risk Insurance Act signed into law in 2002 — to stabilize the market. The terrorism market has since expanded as the nature of the risk has shifted, demand has increased and insurers’ comfort level with the risk has grown as the stories on pages 22 and 23 reflect.

Like 9/11, the COVID-19 pandemic has generated various industry proposals for some type of government backstop to provide market support and enable pandemic risks to become insurable. While there are many reasons put forward by various industry participants on whether this is a good idea, what is clear is that well into the second year of a pandemic in which there continues to be uncertainty for businesses due to the rise of variants and changing agency advice over masking and distancing protocols, lack of coverage continues to be a problem for many commercial insurance buyers. Costly litigation for denied COVID-19-related business interruption claims also continues to unfold, and while much has gone insurers’ way, policyholder wins are not ruled out. At a July 22 hearing of the U.S. Senate Banking Committee’s Subcommittee on Securities, Insurance and Investment to examine frameworks to address future pandemic risk, Evan Greenberg, CEO of Chubb Ltd., said a public-private partnership would lessen the financial blow of a future pandemic. Martin South, president, United States and Canada division of Marsh LLC, also testified at the hearing that without significant government support, property and liability insurance policies are severely limited in their ability to respond to pandemic-related losses.

The ability to adapt, regroup and reshape out of catastrophic events is a hallmark of the insurance and risk industry. Isn’t it time that lawmakers and the industry reach some kind of consensus on pandemic risk?