During a press conference on Tuesday, New York Congresswoman Carolyn Maloney officially announced the introduction of the much-anticipated Pandemic Risk Insurance Act of 2020, a federal backstop for pandemic-related business interruption insurance modeled after the Terrorism Risk Insurance Act.

“This is the only bill I have written that people are endorsing even before it’s introduced,” Maloney said, joined by representatives of business associations for the nonprofit, travel and retail sectors at the press briefing.

“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 when they’re forced to close during public health emergencies,” she said.

In short, the bill, H.R. 7011, creates a program in which insurer participation is voluntary. Insurers who do participate would offer pandemic-related business interruption and event cancellation coverage, and they would be reimbursed by a federal backstop for some of their losses.

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 bill establishes a $750 billion annual aggregate cap for federal compensation. If losses exceed the cap, the Secretary of the Treasury is authorized to determine the allocation of pro-rata payments beyond the cap.

The bill language resembles that of earlier discussion drafts reviewed by Carrier Management in most respects. One key difference from an early draft is the inclusion of language relating to coverage of event cancellations in addition to business interruptions. Event cancellation insurance was not included in an April 3 discussion draft at all, and while it was part of a May 10 draft, the definition of event in actual language of H.R. 7011 now adds some additional event types (competitions, sporting events, film and television productions and award shows) that were not listed before.

All three industry representatives speaking during the press conference thanked Maloney specifically for the event cancellation provisions. “This is absolutely vital, not just for the retail industry, but for hotel and lodging, for the travel industry and for convention bureaus and for cities. These business sectors hold large conventions and generate billions of dollars annually, not just for their organizations but for the cities and locales which host [them],” said Leon Buck, vice president of government relations for the National Retail Federation, noting that canceled events cause “a devastating ripple effect and a sharp decline in revenue that [is] virtually irreparable.”

Given the possible resurgence of COVID-19 in the fall, something which Maloney mentioned in her remarks, a more significant change would seem to be the specification of Jan. 1, 2021 as the date which applies to define of a covered public health emergency, absent in earlier drafts. (“The term ‘covered public health emergency” means any outbreak of infectious disease or pandemic—(i) for which an emergency is declared, on or after January 1, 2021, under the Public Health Service Act; and (ii) that is certified by the Secretary of Health and Human Services, as a public health emergency.”)

“We must act now before we’re faced with another wave of coronavirus cases, which is predicted by the CDC as early as September,” Maloney said.

‘Pandemics Explicitly Excluded’

During her opening remarks at the press briefing, the Democratic congresswoman offered an assessment of the current situation with respect to insurance coverage that was markedly different from President Donald Trump’s reading of existing policy language.

“As we’ve all seen, the COVID-19 pandemic has caused unprecedented damage to our economy, forcing businesses across the nation to close their doors. And while [insurers] typically compensate some business owners when they need to shut down due to circumstances outside their control, like a tornado ripping through Main Street, these policies explicitly exclude pandemics,” she said.

The president, during an April coronavirus briefing, said “I don’t see pandemic mentioned. Now, in some cases it is; it’s an exclusion. But in a lot of cases I don’t see it.” Trump made the remarks after meeting with a group of celebrity chefs whose restaurants have suffered severe business interruption losses. The group, known as the Business Interruption Group, is represented by Louisiana attorney John W. Houghtaling II. Houghtaling offered an alternative to PRIA—and to continued coverage litigation—at a Congressional hearing last week.

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Speaking at a House Small Business committee virtual forum on Thursday (titled “Business Interruption Coverage: Are Policyholders Being Left Behind?”), Houghtaling proposed a federal subsidy program that insurers would be allowed to opt into. While lawmakers listening to the proposal expressed some confusion over the details, Houghtaling seemed to indicate that insurers opting into the program would pay claims under policies with and without virus exclusions, but for loss payments they made under the policies in which “the word virus appears in an exclusion,” they would receive federal reimbursement. (Houghtaling had not responded to CM’s request for a clarification at press time.)

“We… stand with the industry that class actions or ideas that are more for lawyers than for individual rights of business owners is not the answer. But today we need big compromise. We need a win-win,” he told the committee members. “This program will work. It will avoid the litigation costs. It will avoid us, and people like me, litigating over the ashes of these businesses,” he said.

Three insurance trade groups—The National Association of Mutual Insurance Companies, the American Property Casualty and Insurance Association, and the Independent Insurance Agents & Brokers of America—offered an entirely different proposal, releasing a press statement describing a “Business Continuity Protection Program” (BCPP) at just about the same time Houghtaling and several business owners were speaking at the virtual forum last Thursday.

Under the proposed BCPP, run by FEMA, businesses would be allowed to purchase revenue replacement assistance from the BCPP for up to 80 percent of payroll and other expenses.

To secure assistance from the BCPP, a business owner would complete a one-page application electronically and certify that funds received would be used to retaining employees and paying necessary operating expenses. The cost for the assistance “would be calculated as a percentage of the payroll and applicable expenses each participating organization seeks to replace,” a NAMIC representative said.

During yesterday’s press conference, Maloney, who chairs the House Committee on Oversight and Reform and serves on the House Committee on Financial Services, alluded to some insurance industry activity last week that she suggested supported something like her proposal. “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,” she said.

She also said she had support from “more than two dozen national business and trade associations and organizations, whose members represent some of the most impacted businesses and employees…in New York and across the country.”

Drawing an analogy between the failure of the insurance market to provide terrorism coverage after 9/11 and the prospect of having no pandemic risk coverage available in the future without some kind of federal backstop, Maloney recalled how the New York City economy completely shut down after the 9/11 attacks. “We couldn’t build anything because insurance companies would not insure any property against terrorist attacks. You couldn’t even insure a hot dog stand,” she said, noting that the only “expensive” insurance available was from Lloyd’s of London.

“So, we came together in a strong bipartisan way to solve this problem and pass the Terrorism Risk Insurance Act….TRIA successfully unlocked the terrorism insurance market, got the economy moving again and put people back to work,” she said. “Terrorism insurance is now widely available at affordable prices and Congress has reauthorized TRIA four times with broad bipartisan support. That’s what we’re trying to do with the Pandemic Risk Insurance Act too,” she said.

Insurance industry groups believe that pandemics and terrorist attacks are vastly different types of events, however, and say that pandemics are uninsurable.

“Terrorist attacks, as awful as they are, do have limits in geography. They have limits in scope and frequency,” Jimi Grande, senior vice president of government relations for NAMIC told Carrier Management last week, highlighting the different. “This pandemic would be like having 9/11 every day for 60 days or 90 days,” he said, also pointing to a misalignment of goals for risk-based insurance underwriting and responding to a public health crisis response.