Insurers Balk at Pandemic Coverage Proposal

Industry groups are "opposing any legislation that requires them to bear the risk of business-interruption losses from pandemics.”
Matthew HellerMay 14, 2020
Insurers Balk at Pandemic Coverage Proposal

The insurance industry is pushing back against legislative proposals that would establish a public-private program to insure against future business interruption losses related to a pandemic.

U.S. House lawmakers, insurance brokerage Marsh & McLennan, and others have been pursuing a possible Pandemic Risk Insurance Act (PRIA) of 2020 that, according to a draft proposal, would provide for a “transparent system of shared public and private compensation for business interruption losses resulting from a pandemic or outbreak of communicative disease.”

The legislative effort has been sparked by concerns that pandemic exclusion clauses in current insurance policies will potentially allow insurers to avoid hundreds of billions of dollars in business-interruption claims because of the COVID-19 pandemic.

But as The Wall Street Journal reports, two leading insurance industry groups — the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies — “are opposing any legislation that requires them to bear the risk of business-interruption losses from pandemics.”

“Rather than forcing the industry into a role that it is ill-suited to play, Congress should be focused on a federal approach that provides simplicity, certainty, and immediate relief to impacted businesses,” David Sampson, APCIA’s chief executive, told the Journal.

According to Sampson, a hypothetical 30 million pandemic-related claims from small businesses would result in losses of $220 billion to $383 billion per month, 10 times the amount in claims ever handled by the industry in a year.

Many insurers added exclusions for virus- or bacteria-related losses to standard commercial policies after the SARS outbreak in 2002-2003 led to millions of dollars in business-interruption claims.

The PRIA proposal is modeled after the 9/11 Terrorism Risk Insurance Act, which established a public-private framework for handling business-interruption claims related to terrorist attacks.

But Sampson believes a global pandemic presents unique problems for insurers because “by its very definition, you can’t diversify the risk.”

“In the future, the federal government needs to be there for any business it causes harm through mandatory shutdowns … Torturing the current [terrorism-risk] model to work for insurers shouldn’t be the goal,” Jimi Grande, an executive with NAMIC, told the WSJ.