Pandemic Risk Insurance Act and the Future of Business Interruption Insurance

The impact of COVID-19 on the international community cannot be overstated, and as our lives have seemingly come to a halt, so have the operations of many of the world’s businesses.

The insurance industry is no exception. It is perhaps ironic that while most insurance companies and agencies continue operating as “essential businesses” under applicable state mandates, the flood of claims under business interruption insurance policies could make the prospect of shuttering doors a real possibility.

In response to the tragedies of September 11th, 2001 (arguably the most appropriate comparison in magnitude to COVID-19 in a generation), the U.S. Congress passed the Terrorism Risk Insurance Act, or “TRIA,” which helped provide sufficient terrorism insurance to U.S. policyholders by mandating the offering of terrorism insurance coverage while providing a backstop for losses payable through funds provided by the U.S. Secretary of Treasury (the “Treasury”). It should come as no surprise that, in the wake of COVID-19, there is increasing momentum for the passage of a Pandemic Risk Insurance Act, or “PRIA,” as well.

What is PRIA?

One of the realities of a post-9/11 world was that the pricing and availability of terrorism insurance coverage was thrown into flux. Reinsurance markets around the world faced the prospect of drying up, and underwriting large, metropolitan risks would quickly become a laborious and risky endeavor. TRIA’s federal backstop provided the national and international insurance and reinsurance industries a financial cushion through the Secretary’s backstop to weather another potentially catastrophic event. At the same time, it provides prospective insureds access to terrorism coverage by requiring insurers to “make available” on most forms of commercial property and casualty insurance terrorism coverage.

The U.S. now faces a similar threat that the market for business interruption insurance will be substantially interrupted as well (pun intended). Fortunately, the TRIA model — which has seen bipartisan support over the last two decades and general support among the insurance industry — provides an efficient framework around which PRIA may be structured.

On March 18, 2020, Maxine Waters formally called for the implementation of PRIA, which would “create a reinsurance program similar to [TRIA] for pandemics, by capping the total insurance losses that insurance companies would face.” A number of initial structures have been suggested, including combining both TRIA and PRIA into one, singular piece of legislation that would provide insureds a second opportunity to purchase both TRIA and PRIA coverage at an enhanced premium.

More recently, a model PRIA draft bill (the “PRIA Discussion Draft”) has been circulating through Congress. The PRIA Discussion Draft very closely mirrors TRIA and requires participating insurers to “make available” insurance coverage for a “covered public health emergency,” which includes “any outbreak of infectious ‎disease or pandemic” on terms that do not differ materially from the terms applicable to losses ‎arising from other events.‎




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