The massive financial toll of COVID-19 in the U.S. has led to calls for a federally backed insurance program to cover a risk the private sector cannot manage on its own.
Advocates are proposing the program to fill what has shown to be a sizable gap in commercial insurance for business clients hemorrhaging cash from closures ordered to slow the spread of COVID-19. The standard policy forms for business interruption insurance exclude losses from pandemics.
"There are just some things that private industry can't do because there are going to be more claims than premium that you can collect," said Butler University risk management professor Zachary Finn, who has been at the forefront of a push to get on the congressional agenda a plan for government-backstopped coverage similar to programs for terrorism and flooding.
Using an insurance program would mean that during the next pandemic-forced economic slowdown, the government could get relief to businesses and workers more quickly and efficiently than through a rescue package, Finn said in an interview.
Marsh has for two years offered a pandemic risk program in partnership with Munich Re Co. and Metabiota Inc. In letters to the Trump administration and Congressional leaders, Marsh CEO John Doyle pointed to the company's "particular expertise" in helping structure the PathogenRX coverage for hospitality, retail, tourism and other industries, as well as Marsh's part in shaping pandemic risk bonds.
Small business agency The Upton Group LLC has also advocated for pandemic risk legislation based on the template of the Terrorism Risk Insurance Act, or TRIA. Jason Upton, president of the Guntersville, Ala.-based company, said a pandemic program modeled on TRIA would reduce or even eliminate the need for a business bailout.
"If we don't see another event like this five to 10 years from now, then we can build up a reserve," Upton said via email. Costs initially would be higher as the reserve builds, but lower as each year passes without an outbreak, he said.
Industry leaders believe that a pandemic risk program would be a far more appropriate solution than the remedies that have cropped up in state legislatures. Proposals in New Jersey, New York, Massachusetts and Ohio seek to force insurers that wrote business interruption insurance with pandemic exclusions to retrofit their covers for the outbreak.
Although insurance companies operate with substantial cash reserves, advocates say they are not nearly enough to pay for COVID-19 losses for which they did not collect premium. The American Property Casualty Insurance Association estimates that losses for small businesses alone could be up to $383 billion per month.
Total reserves available for home, auto and business insurers to cover all losses are about $800 billion, said David Sampson, the association's president and CEO.
The sheer magnitude of the potential losses is a major inspiration for a government solution similar to the federal quota share arrangement backing TRIA. Unlike that program, a pandemic risk cover should not be optional, Finn and Upton said.
Finn would use TRIA reserves to help staunch the current bleeding for businesses, then charge those who were not participating higher premiums at the outset of a formalized pandemic risk backstop.
"What I would recommend is that you take the Terrorism Risk Insurance Act, and you get a Sharpie marker, and after it says 'terrorism,' you write 'pandemic,'" Finn said. "And then you make it retroactive to coronavirus."
Upton said a standardized, federally backed and widely available policy would bring more targeted relief when the government needs to step in during a pandemic crisis.
"Next time, any [stimulus] relief package could be focused on the individuals while small businesses have insurance in place for them, which they paid for," he said.