Risk managers back pandemic pools as US Congress offered Pandemic Risk Insurance Act 2020

Member of Congress Carolyn B Maloney, chairwoman of the House Oversight and Reform Committee. Credit: U.S. House Office of Photography/House Creative Services

Political support is growing in Washington for the creation of a state-backed pandemic insurance scheme to help cope with the financial impact of a future outbreak, as originally proposed by Marsh CEO John Doyle.

In a letter to clients, Mr Doyle said a public/private pandemic risk insurance programme is “essential” to accelerate economic recovery and provide much-needed protection against future pandemic risks. He also wrote to Congress and the Trump administration to offer Marsh’s assistance in the creation of such a programme.

US risk management association Rims has already voiced its support for the initiative. Risk managers in Europe are also supporting similar efforts. Both the Federation of European Risk Management Associations (Ferma) and Airmic in the UK told Commercial Risk Europe last week that they supported the concept in principle and would like to take part in the discussion.

Politicians in Washington are apparently keen on the idea and a number of proposals are reportedly being prepared, one of which suggests a scheme under which the insurance market would pick up losses up to $250m with the state reinsurance kicking in at that point up to a maximum of $500bn.

One such proposal has been tabled by Member of Congress Carolyn B Maloney, chairwoman of the House Oversight and Reform Committee. Ms Maloney has proposed the Pandemic Risk Insurance Act of 2020 in a letter seen by Commercial Risk Europe.

In this letter, Ms Maloney suggests that insurance companies would be required to offer business interruption insurance policies that cover pandemics. She suggests the creation a Pandemic Risk Reinsurance Program to “ensure that there is sufficient capacity to cover these losses and protect our economy in the event of a future pandemic”. Under the proposed scheme, the government would act as a backstop for the programme to maintain stability and share risk with insurance companies.

The program would probably be managed by the Senate Banking Committee and need support from Democrats and Republicans to clear both chambers.

“I am writing to inform you that I am developing the Pandemic Risk Insurance Act of 2020, to create the Pandemic Risk Reinsurance Program, a system of shared public and private compensation for business interruption losses resulting from future pandemics or public health emergencies,” states Ms Maloney’s letter.

“The Covid-19 pandemic has caused untold health, social and economic damage in my home state of New York and across the nation. Although the situation continues to be fluid, we do know that the economic ramifications are unlike anything our country has ever experienced; in the last two weeks alone, a record ten million Americans filed for unemployment compensation. As the number and duration of state-level quarantines continue to grow, so too will the economic harm small business owners will incur through no fault of their own. Main Street’s ability to recover from today’s pandemic will determine the stability and viability of our national economy in the face of future pandemics,” she continues.

“An ounce of prevention is worth a pound of cure. The Pandemic Risk Insurance Act (PRIA) would be an important step in our prevention efforts against future pandemics by both requiring insurance companies to offer business interruption insurance policies that cover pandemics, and creating a Pandemic Risk Reinsurance Program to ensure that there is sufficient capacity to cover these losses and protect our economy in the event of a future pandemic. Like the Terrorism Risk Insurance Act (TRIA), the federal government would serve as a backstop to maintain marketplace stability and to share the burden alongside private industry,” concludes the letter.

Ms Maloney’s letter was distributed as the House Financial Service Committee Democrats proposed a new relief package to follow the $500bn CARES relief programme that would also include a state-backed pandemic insurance scheme.

This proposal – Proposed Package 4 Related to Covid-19 – calls for the creation of “a federal reinsurance programme, similar to the Terrorism Risk Insurance Program, for pandemic risks in order to promote the availability and affordability of insurance coverage that includes pandemic risks”.

US risk management association Rims supports the PRIA concept.

“Rims’ external affairs committee has extended its support to congressional leaders to provide the risk professional’s perspective as they work to develop the bill’s details. That same committee also continues to meet with industry leaders, both brokers and carriers, to discuss the particulars of such a bill, how it would work and its potential effectiveness,” a spokesperson told CRE in a statement.

The European risk management community also supports the idea. Last week, Ferma urged the EU to support the creation of national insurance pools for future pandemic risks. This follows similar calls from the UK’s Association of British Insurers, the French Insurance Federation and European insurance federation Insurance Europe. Airmic said it would support such an effort.

Thomas Buberl, CEO of AXA, has pledged to personally lead efforts to create state-backed insurance schemes to provide cover for pandemic risk in the form of public-private partnerships.

Dirk Wegener, president of Ferma, summed up the feeling from the risk management community neatly as he said: “National pools have been useful in responding to other severe and widespread risks, such as terrorism. We believe they can be so now. We encourage the European Union to support such developments and ask EIOPA to make proposals. Ferma remains available to provide an expert view from risk and insurance managers.”