Optimizing Insurance's Role in the Pandemic

Policymakers must thoughtfully position insurance industry capabilities where they can have the greatest impact. Here is a proposal.

The nature and scale of the risk of future pandemics far outstrips the insurance industry’s capabilities, so any public-private partnership must make the most of them.

COVID-19 has revealed the expansive landscape of pandemic risk. The federal government has already committed $2.2 trillion to fund pandemic relief programs for individuals, businesses and state and local governments, just for 2020. Congress is currently debating whether to commit an additional $1 billion or $3 billion, with an outcome probably somewhere in between.

Meanwhile, policymakers, commercial interests and the insurance industry have been working through how to prepare for the risk of another pandemic in the years ahead. While they may argue about how much capital the insurance industry should be asked to put at risk against future pandemics (ranging from $0 to $50 billion), even the most aggressive proposals would transfer only about 1% of foreseeable losses to insurers.

Further, those proposals would direct all of the insurance industry’s pandemic risk capacity to take on “business interruption” losses. For example, the Pandemic Risk Insurance Act would give large corporations the tools to make up for lost profits and reduced executive compensation during a pandemic. The proposed Business Continuity and Protection Program, as well as Chubb’s Pandemic Business Interruption Program, would provide benefits similar to those recently paid out under the Paycheck Protection Program.

None of these proposals address any of the other foreseeable pandemic exposures such as third-party liability claimsworkers compensation claims or the cost to remediate contaminated property.

See also: How Risk Managers Must Adapt to COVID

Without a doubt, the insurance industry’s role is severely constrained compared with the enormous scale of the pandemic risk. Accordingly, policymakers must thoughtfully position insurance industry capabilities where they can have the greatest impact for those individuals, state and local governments and businesses suffering financial loss during a pandemic.

The Pandemic Risk Landscape is an effort to provide policymakers and other stakeholders with a practical tool to assist them to consider the optimal positioning of the insurance industry’s capabilities within a public-private partnership. Equipped with a view of the full scale and range of exposures to financial loss confronting families, governments and businesses, policymakers may continue to conclude business interruption is the single best target of insurance industry resources within a public-private partnership. Or, they may find at least some of those limited resources should be allocated to other stakeholders and other exposures to loss.

Jason Schupp

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Jason Schupp

Jason Schupp is the founder and managing member of the Centers for Better Insurance. CBI is an independent organization making available unbiased analysis and insights about key regulatory issues facing the industry for use by insurance professionals, regulators and policymakers.


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