Policy Issues

Examining the Impact of COVID-19 on the Live Event Entertainment Industry - BCC Statement

December 14, 2020

The Business Continuity Coalition (BCC) represents a broad range of business insurance policyholders—large and small from across the American economy, employing more than 60 million workers. The group was launched earlier this year to provide the policyholder perspective in efforts by policymakers and stakeholders to develop a public/private program to limit future economic damage from pandemics that cause business interruptions.

The BCC policy recommendations outlined below embrace several elements of other pandemic-related proposals providing a parametric NDBI insurance product. In contrast to many of these proposals, however, BCC recommends mandating availability in other lines of insurance, including event cancellation. While mandating availability in these lines, the BCC proposal would give insurers the option of supporting a joint underwriting facility instead of issuing the backstopped NDBI on their own paper. An important backstop support for insurers’ developing workers compensation exposure would also be provided.

In short, the BCC policyholder proposal seeks not only widespread availability and affordability of NDBI coverage but also restoration and expansion of pandemic coverage in other lines, including event cancellation, movie/TV production package insurance, general liability, employment practices liability, and other lines that have been hit hard by COVID-19.

Recommendations for Program Features

For all these reasons, the Business Continuity Coalition urges the design of any pandemic risk insurance

program adhere to the following principles:

1. Scope: Any Federal backstop should support not only NDBI coverage but also other pandemic

impacted lines of insurance, such as event cancellation, workers compensation, production or

cast insurance (for film and TV productions), and general and employment practices liability

insurance. These lines may need to be supported by a robust backstop even for a recurrence of

COVID-19.

2. Private Insurer Utilization: Insurers should be included in any pandemic insurance program to

involve a number of current industry advantages: (1) determine appropriate premiums to reduce

taxpayer outlays; (2) use existing claims-paying infrastructure to pay claims; and (3) leverage

insurer expertise in risk mitigation to help businesses understand how they can reduce pandemic

risk, comply with imposed requirements, and get their businesses up and running expeditiously.

3. Availability: Eligible insurers should be required either to share some portion of the risk in the primary NDBI coverage layer or to support other covered lines of insurance, including event cancellation insurance, as a condition of being permitted to sell any government-supported NDBI coverage. Any pandemic program must properly balance the need to ensure participation with the reality that insurers cannot take on too much uncertain exposure.

4. Affordability: Premiums for the program should not aim to cover full program costs. During an initial economic recovery period, the backstop should be without premium, after which the government should charge at least some premium for the risk it bears, but policymakers should not expect premiums to cover the full cost of the program. Premium levels should be set to result in widespread take-up. Cost recovery should be premised on 50+ years.

5. Solution Must Meet Needs of Businesses of All Sizes: TRIA should be the template for both

availability and backstop, although there are important differences to the pandemic peril that must

be reflected in final design. However, the NDBI benefit and the general availability requirements

should avoid an arbitrary headcount cliff (e.g., 500 employees), just as the backstop should avoid

“deductibles” or co-shares tied to volume rather than risk exposure.

6. Rapid Claims Payment/Minimum Transaction Costs: Any primary NDBI program should be

structured as parametric coverage, which would be triggered by defined external conditions (i.e.,

national health declaration + state/local action affecting specified business categories) without

recourse to usual proof-of-loss; although use of proceeds might be audited. A Federal Reserve

liquidity facility should be authorized to ensure rapid pay-outs.

7. Pooling Alternative for Offer of NDBI Coverage: Insurers that do not wish to underwrite the

primary NDBI coverage directly should be given the option to support a joint underwriting facility

for that coverage which would also enjoy the Federal backstop support.

8. Stop-Loss As Well As Quota-Share Protection: Federal reinsurance protection for both NDBI

primary program and for other covered lines, including event cancellation insurance, should be

offered, on an optional paid basis, in the form of stop-loss protection in addition to the co-share

element, given the potentially extreme cumulative risk of pandemic losses.

9. Utilization of Reinsurance and Capital Markets: The Federal program should, like NFIP, be

encouraged to foster development and use of private reinsurance markets as well as capital

markets’ alternative risk-transfer mechanism to further reduce or protect taxpayer exposure.

10. Continuity: A Federal pandemic risk insurance program should be administered by a Federal

entity housed within the Department of Treasury with continuous existence, such as the WW IIera

WDC (later wound-down) or the Federal Crop Insurance Corporation.