By Leslie Scism and Brody Mullins
A legislative proposal in Washington, D.C., for a public-private
program to insure against future pandemic-related business losses
is facing growing opposition, as insurers begin a push to put
responsibility for claims on the government.
For weeks, U.S. House lawmakers, insurance brokerage Marsh &
McLennan Cos. and others have been pursuing a possible government
financial-backstop arrangement that would help insurance carriers
provide coverage for businesses during pandemics in years to
come.
The legislation wouldn't apply to existing claims from Covid-19,
but seeks to make insurance available for future pandemics so that
businesses wouldn't get into the coverage disputes they are now
fighting with their insurers. Insurers maintain that most of their
policies exclude pandemic-related business-interruption losses, and
litigation is mounting in courts nationwide as they reject
claims.
The legislative effort builds on the framework of a federal
program established after terrorist attacks in 2001 roiled the
insurance market. Adopted with broad industry and political
support, the terrorism backstop program puts responsibility on
insurers for a slice of claim payments, and U.S. taxpayers then
step in for additional payouts.
But history isn't repeating itself.
Two leading trade groups, which represent most of the nation's
property insurers, are opposing any legislation that requires them
to bear the risk of business-interruption losses from
pandemics.
The two groups -- the American Property Casualty Insurance
Association and the National Association of Mutual Insurance
Companies -- maintain that a public-private insurance program isn't
the best way to help small businesses recover from
government-ordered shutdowns and that the risk is fundamentally
different from what insurers face with terrorism. It is unclear
whether some insurers will break ranks with the trade groups.
"Rather than forcing the industry into a role that it is
ill-suited to play, Congress should be focused on a federal
approach that provides simplicity, certainty and immediate relief
to impacted businesses," David Sampson, chief executive of the
American Property Casualty group, said in an interview.
While insurers' exposure to business-interruption claims would
be capped under the new program, some industry executives are
concerned about the size of the slice they would be required to
hold and their ability to diversify it. Covid-19 shutdowns have
created business losses on virtually every block in every town
across the country, they note.
They note that insurance works on the theory that, if many
entities pay into a pool, only a relatively few will make claims in
any given year. With terrorism, certain high-profile buildings and
locations pose higher risk, but insurers can offset those risks
with lower-profile properties in other locations.
Jimi Grande, an executive with the other trade group, said, "In
the future, the federal government needs to be there for any
business it causes harm through mandatory shutdowns.... Torturing
the current [terrorism-risk] model to work for insurers shouldn't
be the goal."
Mr. Grande lobbied on behalf of the Terrorism Risk Insurance Act
in 2001-02, and recalls that "the contours of TRIA didn't come
together for about a year, and the insurance industry was at the
table working on it the whole time."
The two groups are promoting some type of federal pandemic-loss
program under which businesses would pay the U.S. government for
protection to maintain continuity during shutdowns. Smaller
enterprises could get subsidies. Payouts could be automatically
triggered by federal emergency declarations and shutdown
directives.
In Washington, legislation for the new public-private
terrorism-risk-type program is in the hands of Rep. Carolyn Maloney
(D., N.Y.). Senators in both parties are weighing separate plans
based on a different model.
Under the existing terrorism-risk program's formulas, insurers
would pay roughly $45 billion, and taxpayers would pay as much as
$55 billion, bringing total payouts to $100 billion. The program
hasn't been triggered since its passage in 2002.
Marsh's lobbying effort was launched March 30 with a letter from
John Q. Doyle, president of its brokerage unit, to Congress and the
Treasury. The letter said "the stakes for businesses, their
employees and the economy are simply too high to defer action in
addressing pandemic risk exposure" going forward.
The letter advocated for a program, like the terrorism one, in
which policyholders, insurers and the government would share risks.
Policyholders would have deductibles, carriers would pay claims up
to a specified level, and the government would backstop the program
up to a higher level.
Some organizations representing buyers of insurance have spoken
publicly in favor of such a public-private program.
Mr. Doyle said in an email Wednesday that Marsh is in regular
contact with policyholders, trade groups, insurers and government
officials to try to come to a consensus on a prospective program. A
number of public-private mechanisms could be used as models, he
said.
"I'm hopeful that the industry can come together on this," he
said.
Write to Leslie Scism at leslie.scism@wsj.com and Brody Mullins
at brody.mullins@wsj.com
(END) Dow Jones Newswires
May 14, 2020 08:44 ET (12:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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