Potential Pandemic Business Interruption Federal Insurance Mechanism Considered at the NAIC Fall 2020 National Meeting

On December 8, 2020 at the National Association of Insurance Commissioners (NAIC) Fall National Meeting, the Center for Insurance Policy and Research (CIPR) held a special session to discuss a potential pandemic business interruption federal insurance mechanism.

Set forth below are highlights from the session.

• The first panel focused on considering existing federal insurance programs and what lessons can be learned from them for a future pandemic federal insurance program.  Specifically, the panelists discussed the possibility of a federal business interruption program which could be structured as post-event reinsurance such as the federal Terrorism Risk Insurance Program (TRIP) or social insurance like unemployment.  The program could draw upon lessons learned and approaches used in existing federal insurance mechanisms (e.g., TRIP, the federal flood insurance program and the federal crop insurance program).
• Another panel considered the current proposals for a pandemic insurance program, including the Pandemic Risk Insurance Act (PRIA), which was introduced in the US House of Representatives earlier this year, and the Business Continuity Protection Program (BCPP) which was proposed by the American Property Casualty Insurance Association and National Association of Mutual Insurance Companies.
• PRIA would provide for a public-private federal program that would require participating insurers to offer business interruption policies that cover pandemics. PRIA would be a voluntary program, would not apply retroactively, and would include a federal backstop that would be triggered upon the certification of a pandemic as a public health emergency. Under the current draft of PRIA, aggregate insured losses would need to exceed $250 million and participating individual insurers would pay a 5% deductible with the federal government covering 95% of losses.
• The BCPP would be a revenue replacement program, which would be triggered upon the declaration of a viral emergency by the President and would provide up to 80% reimbursement of payroll, employee benefits, and operating expenses for businesses for up to 3 months.
• The final speaker concluded the session with an overview of the pandemic risk landscape based on the COVID-19 experience thus far, which will need to be taken into account in trying to address pandemic business interruption issues in the future.

The likelihood that a potential pandemic business interruption federal insurance mechanism will be adopted has ebbed and flowed over the course of this year, and it remains to be seen what, if anything, will ultimately be put in place.