A discussion draft of the “Pandemic Risk Insurance Act” has circulated over recent weeks. Based on the Terrorism Risk Insurance Act, the text is an excellent jumping off point to think about what would work and what would not.
The draft quickly forces to the surface an uncomfortable reality that a TRIA-style “make available” requirement would separate policyholders into the haves and the have-nots.
Large corporations with the financial wherewithal and sophistication to establish their own pandemic risk insurance companies may structure multibillion-dollar bailout plans free from government intrusion into executive pay, share buyback plans and layoff strategies. More than 500 such “captives” already participate in the Terrorism Risk Insurance Act and could claim as much as 95% of federal funding under that program.
Small and medium-sized businesses, churches, school districts and other nonprofits and local governments would not fare so well. These regular policyholders cannot afford to set up their own insurance companies. The standard insurance policies available to them only cover business interruption losses caused by “property damage.” PRIA’s "make available" requirement would cancel out a pandemic or virus exclusion – it does nothing to address the necessity of property damage.
A large corporation can simply negotiate with itself to remove the prerequisite of property damage. Regular policyholders would have to file lawsuits seeking a judicial finding of property damage as is happening right now in the context of COVID-19.
The discussion draft should be focusing attention on the needs of regular policyholders. Once we have a solution that works for them, we can worry about what the program can do for insurance companies and large corporations.
You can find the full report here.