Two property/casualty insurance industry carrier groups and an agents association have unveiled a proposed federal program to replace revenues lost by businesses shut down during pandemics like COVID-19.
The National Association of Mutual Insurance Companies, the American Property Casualty Insurance Association and the Independent Insurance Agents & Brokers of America jointly said on Thursday that they support the “Business Continuity Protection Program,” or BCPP, which would be run by FEMA, allowing businesses to purchase revenue replacement assistance for up to 80 percent of payroll and other expenses.
Other industry representatives have supported a different replacement mechanism—an insurance program with a federal reinsurance backstop, modeled after the Terrorism Risk Insurance Act. While two discussion drafts of the “Pandemic Risk Insurance Act” have been circulated on Capitol Hill in recent weeks, Carrier Management was not aware of any movement at press time to formally introduce the measure.
Under the BCPP proposal developed by NAMIC, APCIA and the Big “I,” businesses would purchase the federal revenue replacement assistance through state-regulated insurance entities that participate with BCPP on a voluntary basis, but the aid would come from FEMA.
“Pandemics simply are not insurable risks; they are too widespread, too severe and too unpredictable for the insurance industry to underwrite,” said Charles Chamness, NAMIC’s president and CEO, in a joint media statement from the trade groups announcing the BCPP proposal. “As we’ve seen in the past few months, pandemics are a national problem, and we need a national solution. NAMIC, APCIA and the Big ‘I’ had one goal in mind in developing the BCPP: crafting a solution that would provide meaningful support for employees, businesses and the economy as a whole.”
Laying out the basics of the BCPP in a statement, NAMIC, APCIA and the Big “I” revealed that the process of securing revenue replacement coverage would involve a simple application and a certification. Specifically, a one-page electronic application would include information pulled directly from the previous annual tax return data of the business seeking assistance. To get the assistance, businesses must certify that they will use any funds received for retaining employees and paying necessary operating expenses—and also that they will follow applicable federal pandemic guidance.
“We need a sustainable solution that provides simplicity, certainty and immediate relief to impacted businesses,” said David Sampson, APCIA’s president and CEO.
Importantly, protection must be purchased at least 90 days before the presidential declaration of a public health emergency. The release of funds is automatically triggered following such a declaration.
Businesses would be allowed to choose a desired level of protection for three months’ relief for up to 80 percent of payroll (excluding highly compensated employees), employee benefits and operating expenses.
As far as the cost that businesses would pay to purchase the federal revenue replacement assistance, a NAMIC representative told Carrier Management that “rates charged by the program will be determined by the program director and be calculated as a percentage of the payroll and applicable expenses each participating organization seeks to replace.”
“That percentage will be uniform for all participants and will not vary based on geography, industry or risk,” NAMIC said.
While the proposed BCPP, like the National Flood Insurance Program, is run by FEMA, in other respects it’s nothing like the NFIP, said Jimi Grande, senior vice president of government relations for the NAMIC. “Companies could purchase [the federal aid] from the same insurance agent they buy their other coverages from but with a parametric trigger and formulaic payout; it wouldn’t operate anything like the NFIP,” he said.
“The small business community is looking to our industry to provide leadership to ensure there is immediate assistance available during future pandemics,” said Bob Rusbuldt, Big “I” president and CEO. “The BCPP is a simple, efficient and effective plan to provide the needed financial security for American businesses. This program gets immediate funding to businesses when they need it most.”
As part of the application process, eligible businesses—which would include any firm incorporated in the U.S. or its territories, including nonprofits—would be required to attest both to compliance with federal pandemic guidelines and to “certify that any relief assistance would be used to retain employees and keep the business viable.”
Relief payments would be automatically triggered and paid immediately once there is a presidential viral emergency declaration. No advance documentation or claims adjustment is needed, the trade groups reported. In administering funds, however, there will be some post-relief audits performed ensuring value use of funds. Invalid uses will result in fines, required repayment and criminal penalties.
According to the trade groups, the BCPP would work with risk mitigation experts to develop pandemic risk mitigation guidelines and safety standards for businesses. These would be provided to the businesses applying for federal relief at the time of application and payment.
The BCPP would also be able to purchase private reinsurance to protect federal taxpayers, the groups said.
Earlier this week, NAMIC’s Grande told Carrier Management that the joint plan was set to be released and explained why the groups believe the alternative PRIA plan is not the right answer.
“The pandemic risk is fundamentally different from a terrorist attack,” Grande said. “Terrorist attacks, as awful as they are, do have limits in geography. They have limits in scope and frequency. This pandemic would be like having 9/11 every day for 60 days or 90 days,” he said, also pointing to the multitrillion-dollar scope of the required outlays that point to the federal government as the only entity large enough to provide a response and the misalignment of goals for risk-based insurance underwriting vs. a public health crisis response.
The most recent discussion draft for PRIA reviewed by Carrier Management (dated May 11) calls for voluntary participation by insurers, and no losses would be paid under the program until aggregate industry insured losses exceed a $250 million aggregate trigger. The federal share of losses would be 95 percent of insured losses above each insurer’s deductible defined under the program. The insurer deductible is defined as “the value of the participating insurer’s direct earned premiums during the immediately preceding calendar year, multiplied by 5 percent.”
The annual aggregate cap on losses under the 5/11 discussion draft is $750 billion.