By Jeff Sistrunk

Law360 (May 26, 2020, 10:52 PM EDT) -- A group of House lawmakers proposed legislation Tuesday that would create a multibillion-dollar federal reinsurance program to back up insurers that offer coverage for businesses' losses due to future pandemics.

U.S. Rep. Carolyn Maloney, D-N.Y., and 20 co-sponsors introduced H.R. 7011, the Pandemic Risk Insurance Act of 2020, which would create a backstop for insurers offering business interruption policies that explicitly cover policyholders' losses due to disruptions in operations attributed to an outbreak or pandemic that leads to a federal emergency declaration after Jan. 1, 2021.

Participation in the proposed reinsurance program would be voluntary for insurance companies, but insurers that sign on would be required to offer pandemic coverage in all their business interruption policies. Participating insurers would collectively be responsible for covering the first $250 million of business interruption losses incurred by their policyholders. Once that threshold is reached, a federal fund administered by the U.S. Treasury Department would cover 95% of additional losses up to $750 billion in a single year, with the remaining 5% spread among the insurers.

During an online press conference announcing the proposal, Maloney said she was inspired by the Terrorism Risk Insurance Act, which was passed in the wake of the Sept. 11 attacks and created a massive government reinsurance program for terrorism coverage. Just as TRIA helped galvanize some insurance carriers to offer terrorism insurance, Maloney said she is hopeful PRIA will lead more insurers to offer policies with pandemic coverage.

In the face of mounting claims from companies affected by government stay-at-home orders, many insurers have publicly asserted that business interruption policies are generally not designed to cover pandemic-related losses. 

"We want to solve a market failure by allowing companies to purchase business interruption insurance that covers pandemics, so they can stay in business and keep their workers employed," Maloney said.

Maloney touted support for the proposal from more than two dozen companies and business trade groups, including Marsh & McLennan Cos., the U.S. Travel Association and the National Retail Federation.

"Congresswoman Maloney's legislation is an important step forward and a clear indication that creating a program is a priority for lawmakers," said a spokeswoman for Marsh & McLennan, which provides insurance brokerage and reinsurance services, in a statement. "There is bipartisan support for a well-crafted program, and we are working with insurers and other stakeholders to bring them to the table to craft solutions together."

However, prominent insurance industry groups have expressed skepticism of a federal backstop for pandemic coverage.

Last week, the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies and the Independent Insurance Agents & Brokers of America Inc. floated a joint proposal for a fully taxpayer-funded federal program, the Business Continuity Protection Program, to help businesses through financial challenges associated with future pandemics.

Under the proposal, companies would pay to participate in the BCPP, which would offer reimbursement of up to 80% of payroll, benefits and operating expenses for three months after a federal declaration of a public health emergency. The proposed program would be administered by the Federal Emergency Management Agency.

Jimi Grande, senior vice president of government relations at NAMIC, told Law360 on Tuesday he understands the intent behind Maloney's proposal but said his organization disagrees with modeling a program after TRIA. Terrorism is fundamentally different from pandemics, which defy the insurance industry's risk-based approach to underwriting, Grande said.

"In terrorism, you have geographic limitations, at least," he said. "With this pandemic, it is like having 9/11 every day for 60 days in a row, or 90 days in a row."
 
Grande said the proposed BCPP would provide much broader coverage than a typical business interruption policy and also offer greater certainty.

"One of the keys is getting money out the door quickly. We want this to be simple, transparent and efficient," he said. "We set this up with a parametric trigger: As soon as the president declares a viral emergency, there is an instant payout to qualified businesses."

David Sampson, the president and CEO of APCIA, said in a statement that the association is "pleased policymakers are considering many potential options to address the impact of future pandemics."

"We look forward to being part of the solution to develop a program that provides simplicity, certainty and immediate relief for all stakeholders," Sampson said. "Pandemics are not insurable because they are too widespread, severe and unpredictable to underwrite. However, APCIA believes that there is a path forward to find a proactive, prospective solution that can work for everyone — customers of all sizes and structures."

Responding to an inquiry about the insurance groups' BCPP proposal at her press conference, Maloney expressed doubt that such a measure could pass Congress, but she said she was encouraged that the insurance industry is exploring prospective solutions for businesses.

"At least let's get to the table and start talking," she said.

--Editing by Aaron Pelc.

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