As our country continues to grapple with the COVID-19 pandemic, those in the insurance industry, policymakers and business leaders must become laser-focused on addressing the threat of future pandemics.
In the early stages of COVID, the loss of income experienced by business owners loomed large, as authorities required businesses to limit their activities and, at times, shut down entirely. Insured clients were calling our member agents and asking about business income coverage. Attorneys also began trolling for clients who had suffered income losses due to forced shutdowns. Business income remains a major topic of conversation within the insurance industry, courts and legislative chambers.
In July, the U.S. Senate Subcommittee on Securities, Insurance & Investment held a hearing titled “Examining Frameworks to Address Future Pandemic Risk.” The subcommittee heard testimony from an array of perspectives, including the insurance industry, policyholders and academics.
Our national association, the Independent Insurance Agents & Brokers of America (the Big “I,” as it is commonly known), provided testimony to the hearing, noting the businesses our members serve have been severely impacted by the pandemic and that independent agents wanted to be a part of any solution involving future pandemic risk.
However, our association also made clear that addressing future pandemic risk will be challenging because of the unique characteristics associated with events like a pandemic. They are global and are unlike other types of risk that the insurance industry and private marketplace typically address.
During the past year, it has become evident that property and liability policies are most limited in their ability to respond to pandemic losses. Although pandemics have occurred before, the significant economic impact of COVID-19 has been of a different magnitude. The potential for future pandemics with severe consequences calls for government action and a public-private partnership.
We support congressional consideration of proposals to cover business losses from pandemics we may face down the road, but there is a vital role for the insurance market to play as well.
Whether it is H.R. 7011, the Pandemic Risk Insurance Act of 2020; the Business Continuity Protection Program; or something else, these programs must work for the policyholder and the insurance community and must be backed by significant federal financial support. Although it might be surprising to some, insurance carriers are simply unable to cover the potential magnitude of losses linked to COVID-19-like events.
A public-private sector partnership is not a new concept. One example was the Terrorism Risk Insurance Act, which Congress passed in 2002, making the federal government the reinsurance backstop for losses resulting from a terrorist attack when claims exceeded a certain threshold. Before TRIA and after massive financial losses from the Sept. 11, 2001, attack, insurers severely cut back in their terrorism coverage or charged exorbitant premiums, making it unaffordable for most.
In the same way, a pandemic is an event the insurance sector can’t face by itself. Many insurers are now excluding coverage for pandemic-related risks from all policies, and those who may provide for some unique types of coverage make it almost financially prohibitive for the average policyholder.
The BCPP proposal being touted has merit. It gives the insurance industry a role in the distribution of timely and efficient federal financial protection to the private sector in the event of a future declared public health emergency. The program would allow businesses to purchase revenue replacement assistance through state-regulated insurance entities. This would include agents and brokers who would voluntarily participate with the BCPP.
We will continue to lobby and assist decision-makers in finding a meaningful partnership to mitigate a future pandemic risk — a partnership that will help align the needs of the industry and, most of all, our policyholders.
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