Rep. French Hill (R-AR), above, – Ranking Member of the House Financial Services Subcommittee on Housing, Community Development and Insurance – led a Feb. 23 discussion on the widening gaps in pandemic-related coverage in commercial insurance markets with policyholders and insurance industry officials.
Pandemic Risk Insurance Solution
- Additionally, members of the multi-industry Business Continuity Coalition (BCC), which includes The Real Estate Roundtable, on Feb. 23 urged policymakers to enact a public-private pandemic risk insurance backstop program. The BCC’s Feb. 23 statement emphasizes that such a program would protect the economy from future government-ordered shutdowns while enabling employers to keep payrolls and supply chains intact.
- The BCC is comprised of over 50 business organizations and companies representing approximately 70 million workers in the hospitality, retail, real estate, communications, broadcasting, nonprofit association, entertainment, restaurant, gaming and professional sports industries. (BCC statement, Feb. 23)
- Real Estate Roundtable President and CEO Jeffrey DeBoer, above, said, “Pandemic risk is one of the largest unhedged risk exposure in the U.S. economy today. It is important to have an economic mechanism in place to protect jobs and the economy from future government mandated shutdowns.”
- DeBoer added, “The Real Estate Roundtable and its Business Continuity Coalition partners encourage policymakers to prepare the economy for future risks by enacting a program that provides the coverages that American businesses need.”
- The BCC offered a detailed proposal last March to establish a federal pandemic insurance program, and endorsed the Pandemic Risk Insurance Act (H.R. 5823) last November, while policymakers continue to deliberate on how to design such a program. (Roundtable Weekly, Nov. 5, 2021)
The coalition noted that the design of any pandemic risk insurance program should adhere to certain principles, which are outlined in the Feb. 23 statement.
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Legislation introduced this week in the House by Rep. Carolyn Maloney (D-NY), above, would create a federal backstop to ensure coverage in all critical commercial lines of insurance for business interruption losses, whether from future pandemics or other public health emergencies. The Real Estate Roundtable and the Business Continuity Coalition strongly support the bill. (ConnectCRE, Nov. 2)
PRIA & Risk Exposure
- The Pandemic Risk Insurance Act (PRIA) of 2021 (H.R. 5823) is modeled after the Terrorism Risk Insurance Act (TRIA) – the enduring, successful public-private backstop adopted following the 9/11 terrorist attacks. (Maloney | Roundtable | Coalition news releases, Nov. 2)
- Real Estate Roundtable President and CEO Jeffrey D. DeBoer, above, said, “PRIA is an important step forward that helps to address possibly the largest unhedged risk exposure in the U.S. economy today. It is important for business policyholders to be able to secure the pandemic risk coverage necessary to maintain jobs and grow the economy. The Real Estate Roundtable and its 19 national real estate trade association partners have seen firsthand how a broad range of economic risks, including terrorism (TRIA) and floods (NFIP), underscore the need for public support when private markets fail. In those circumstances, a public-private partnership is essential to support the economy. PRIA is positive, forward-thinking legislation that Congress needs to pass.”
- A RIMS survey recently found that pandemic risk is excluded or restricted on most lines of commercial property-casualty insurance, and where coverage is available, it is often cost-prohibitive without government support.
- PRIA would require insurers to offer coverage in return for a government indemnification of 95% of insured losses arising from any future pandemic that results in a public health emergency. Unlike TRIA, there is no “insurer deductible” nor would there be any post-event recoupment, although the program would begin to pay for itself after an initial “economic recovery period.”
- The bill would ensure availability of pandemic coverage while fostering the development of private reinsurance and capital market alternatives to reduce taxpayer exposure going forward.
- The Maloney bill also addresses the unavailability of coverage in other crucial lines of insurance such as event cancellation, TV and film production insurance and liability coverage for essential services.
- The bill is similar to current proposals advanced by the insurance industry that would establish a parametric program for non-damage business interruption (NDBI) losses, which recognize rapid claims payment and minimal transaction costs are critical when the aggregation of losses are so high as in a pandemic. The bill also would provide a pooling alternative for insurers that do not wish to underwrite primary NDBI coverage.
- The Roundtable’s DeBoer noted, “When private insurance markets cannot provide the coverage needed to protect jobs and help businesses meet their obligations in the event of a government mandated shutdown, those exposed gaps in business continuity insurance coverage can only be filled by a federally-backstopped mechanism. A TRIA-style program for pandemic risk can protect the American economy with the coverage it needs to minimize the economic impact of pandemic-related shutdowns and aid economic recovery.”
- Closures and shutdowns caused by COVID-19 have significantly impacted the employees and operations of businesses across the country. The Business Continuity Coalition – representing the restaurant, entertainment, professional sports, hospitality, gaming, retail, communications, broadcasting and real estate industries, employing millions of people – encourages policymakers to develop a public-private partnership that will protect American jobs and limit future economic damage from pandemics and other national emergencies that cause business interruptions.
- The Business Continuity Coalition has also posted a collection of statements of support for the PRIA legislation.
- “The Roundtable stands with its partners in the BCC in support of PRIA’s eventual enactment. We commend the efforts of Rep. Maloney and look forward to working with policymakers as the legislation moves forward,” DeBoer added.
The legislative outlook for PRIA will be among the many issues discussed at the next meeting of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) on Nov. 9 in New York City.
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Senate lawmakers heard testimony yesterday about the importance of establishing a federal pandemic risk / business continuity insurance program during a hearing entitled “Examining Frameworks to Address Future Pandemic Risk.” (See webcast and witness statements).
- Senator Bob Menendez (D-NJ), above, chairman of the Senate Banking Subcommittee on Securities, Insurance, and Investment, stated in his opening remarks, “We must determine the extent to which businesses, private insurance providers, and the federal government are able to share the risk of losses due to a pandemic. Each presents different ideas on how much risk is borne by the private sector versus the federal government, and the approach to paying claims.”
- Menendez also noted that of the eight million businesses with commercial insurance policies with business interruption coverage, 83 percent also carried a clause excluding claims from viral contamination, disease, or pandemic – and that 82 percent of claims have been closed without payment. (Menendez remarks)
Roundtable & Coalition Efforts
- The Roundtable is part of the Business Continuity Coalition (BCC), which offered testimony during the hearing on how a public-private backstop program for pandemic risk insurance – similar to the Terrorism Risk Insurance Act (TRIA) program – is urgently needed. Charles Landgraf of Arnold & Porter, above, testified on behalf of the BCC. (See written testimony and video at 1:00:20)
- The coalition includes 44 trade associations and major companies representing more than 70 million workers from healthcare and dining/hospitality to real estate, construction, finance, manufacturing, media and film, live entertainment, professional sports and professional services.
- The BCC’s testimony emphasized how pandemic risk is possibly the largest unhedged risk exposure in the U.S. economy. The coalition’s statement also shows how a precedent for government involvement in insurance markets exists for a broad range of risks – including terrorism (TRIA), flood (NFIP), and crop risk (FCIC) – where private markets fail to provide the economy with the coverage it needs.
- A detailed, section-by-section description of the BCC Recommended Proposal urges the design of any pandemic risk insurance program to address core principles, including: scope, availability and affordability; private insurer utilization; a pooling alternative for offerinf non-damage business interruption insurance (NDBI) coverage; stop-loss and quota-share protection; and utilization of reinsurance and capital markets.
- A New Jersey small business owner, Adenah Bayoh, testified on behalf of the National Restaurant Association (NRA) in support of the BCC proposal, stated, “This country needs a Pandemic Risk Insurance Program to ensure that Main Street businesses and employees have certainty and continuity in the ability to navigate the impact of a future pandemic.”
Both Senate and House subcommittees played important role in the seven-year extension of the Terrorism Risk Insurance Program (TRIP) enacted in 2020. (Roundtable Weekly, Dec. 13 and Dec. 20, 2019)
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House lawmakers heard testimony about a possible federal pandemic risk / business continuity insurance program during a hearing yesterday entitled, Insuring against a Pandemic: Challenges and Solutions for Policyholders and Insurers. (Webcast of hearing and witness statements)
- The BCC announced on Oct. 28 that it aims to develop a public/private business continuity insurance program with policymakers and other stakeholders. Such a program would enable employers, in the event of a government-ordered shutdown, to keep payrolls and supply chains intact; help limit job losses and furloughs; reduce stress on the financial system; and speed economic recovery when government-imposed limitations on operations are lifted. (BCC launch news release)
- The BCC has emphasized that the COVID-19 crisis has shown the current lack of insurance availability for business continuity coverage for catastrophic pandemic events. This coverage gap raises concerns for policyholders and shows the need to enact an effective federal program.
- The BCC hearing statement submitted this week notes, “… if not remedied, these insurance gaps will hinder any recovery, especially impacting business lending, new leasing activity, retail and hospitality, housing construction and development, as well as media production. Private insurance alone cannot and will not remedy the gaps – at least not in the short-term – but private insurers need to be part of the solution. What is urgently needed is a federally-backstopped availability mechanism similar to the highly successful one which Congress put in place for terrorism following 9/11– in short, a TRIA-style program for pandemic risk.”
- A number of legislative proposals have been introduced to address the need for business continuity coverage – including the Pandemic Risk Insurance Act of 2020 (H.R. 6983).
- Roundtable President and CEO Jeffrey DeBoer on Sept. 25 discussed prospects for developing and enacting a federal pandemic risk-business continuity insurance program with Rep. Steve Stivers (R-OH), the Ranking Member on the House Subcommittee. (Video of the discussion)
- “We’ve seen business interruption insurance not being willing to cover any pandemics. I think you’re going to start to see lenders … requiring some type of pandemic coverage in their loan covenants in the coming years,” Stivers said.
- He added, “I think we need to make sure that if this ever happens again and the government shuts down the economy, [Congress] holds people harmless and businesses harmless in the future.” (Video of the discussion)
DeBoer commented, “The pandemic crisis has exposed gaps in business continuity insurance coverage that can only be filled by a national program that will provide the American economy with the coverage it needs to minimize the economic impact of pandemic-related shutdowns and aid economic recovery.”
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House Democrats and the insurance industry recently released separate proposals aimed at expanding the availability of pandemic-related business interruption insurance. (Bloomberg Law, May 28)
- Legislation introduced on May 26 by Congresswoman Carolyn B. Maloney (D-NY), above, senior member of the House Financial Services Committee, would create the Pandemic Risk Reinsurance Program – a federal backstop that would provide capacity for pandemic risk insurance and maintain marketplace stability with the private sector, modeled after the Terrorism Risk Insurance Act (TRIA).
- Rep. Maloney commented on the introduction of PRIA this week with stakeholders during a remote news conference. “We want to solve a market failure by allowing companies to purchase business interruption insurance that covers pandemics so that they can stay in business and keep their workers employed. To solve this marketplace failure, we need to create a federal backstop just like we did with TRIA,” said Rep. Maloney. “That’s why I’ve introduced the Pandemic Risk Insurance Act. This will help relieve some of the economic losses that business are suffering and will protect businesses and the economy from future pandemics.” (PRIA introduction video, May 26)
- Under PRIA, Maloney stated. “… policyholders and insurers and the federal government will share the risks. With this backstop, the insurance industry will have more certainty and will be able to safely underwrite this unique risk.” (PRIA Section-by-Section Summary)
- Rep. Maloney also noted the insurance industry’s May 21 proposal for a federal program to help businesses meet the financial challenges from future pandemics. “It was encouraging to see last week the insurance industry’s agreement with so many members of Congress and policyholders from across the country that pandemic insurance is a viable, actuarially sound product – and that there is an immediate need to create a mechanism to provide relief for millions of struggling business owners.”
- The insurance industry-backed Business Continuity Protection Program, proposed in advance of Rep. Maloney’s PRIA bill, would provide revenue replacement assistance for payroll, employee benefits and operating expenses following a presidential viral emergency declaration. (National Association of Mutual Insurance Companies news release, May 21)
- The proposals from Rep. Maloney and the insurance industry are prospective, and do not address losses associated with the current coronavirus pandemic. The Trump administration, lawmakers and state insurance regulators have warned against measures that would have insurers retroactively pay for current pandemic claims. (Politico, May 21 and Insurance Journal, May 27)
- The Real Estate Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to develop and enact an effective pandemic risk/business continuity program.
Pandemic risk insurance will be a policy focus during The Roundtable’s Remote Annual Meeting and policy advisory committee meetings on June 11-12.
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