Insurer Chubb and Democratic lawmakers have found common ground on a public-private plan for businesses to get pandemic insurance, but the rest of the industry isn’t on board.
Zurich-based Chubb, one of the world’s largest insurers, introduced a plan July 8 that would have the U.S. government share a large portion of business interruption coverage for companies and small businesses harmed by the coronavirus and future pandemics.
The Chubb plan, modeled in part on the Terrorism Risk Insurance Program, has many similar features with a plan offered in May by Rep. Carolyn Maloney (D.N.Y), the Pandemic Risk Insurance Act.
But the Chubb plan also highlighted divisions within the insurance industry, facing a steady wave of lawsuits from businesses looking for coverage after their locations were shut down.
Fundamental differences remain about what federally backed business interruption policies should cover, including how the programs are managed, what is covered and how insurance payouts are used, Robert Gordon, senior vice president for policy at the American Property Casualty Insurance Association.
“They’re all trying to find solutions, but really we think there are enormous gaps in the other proposals,” said Gordon, whose group has introduced its own plan alongside two other major trade associations.
The insurance industry’s litigation with small business and corporate policyholders revolve around whether Covid-19 and government shutdown orders are covered by business interruption policies. Such policies typically cover physical damage and frequently come with virus exclusions.
The insurance industry says paying out virus-related claims would cost trillions and would push many companies into insolvency. Nor does the industry have the capacity to begin coverage.
“Business interruption for pandemics is not something capable of being broadly underwritten by insurers because of the geographic scope and magnitude of the risks,” Scott Seaman, co-chair of Hinshaw & Culbertson LLP’s Global Insurance Services Practice, said.
The federal government is likely going to have to provide some sort of global coverage, most insurers say.
Policymakers should “acknowledge some fundamental principles, most notably that global pandemics are largely uninsurable,” Sean Kevelighan, the chief executive of the Insurance Information Institute, said in a statement to Bloomberg Law.
Both Maloney and Chubb envision a program where insurers offer pandemic coverage policies to businesses with the federal government bearing most of the coverage costs.
The Chubb plan would set up different coverage tiers for smaller businesses and companies with 500 or fewer employees, and larger firms seen as having better financial resources. Coverage would kick in when the president declares a pandemic disaster.
Insurers would contribute $15 billion of the proposed $250 billion in coverage for smaller businesses in the first year, with the contribution rising to $30 billion over the course of 20 years under the Chubb plan. A second layer of coverage totaling $500 billion would be provided entirely by the federal government, according to Chubb’s plan.
For larger businesses, insurers would cover $15 billion of $400 billion in coverage for the first year, with the insurers’ contribution rising to $30 billion by the tenth year of the program under the Chubb plan.
While the plan doesn’t lay out premium prices, smaller businesses would only have to pay premiums for the insurer’s share of coverage, while larger businesses would have to pay premiums based on both the insurer’s and government’s risk.
Maloney’s bill (H.R. 6983) would see the government cover 95% of an insurer’s insured loss in excess of a deductible policyholders cover themselves. Maloney wasn’t available for comment.
While participation would be voluntary, a participating insurer would be required to make business interruption coverage for public health emergencies, similar to provisions under the government’s terrorism risk insurance program.
Both Maloney’s legislation and Chubb’s plan envision the Treasury Department overseeing the pandemic risk program.
“I’m generally a fan of the proposed bill that would create a TRIA-like mechanism for future pandemic risks, and I think the Chubb proposal is similar in many respects,” said Daniel Schwarcz, a professor at the University of Minnesota Law School.
The broader insurance industry is backing a program that would be run through the Federal Emergency Management Agency and come with federal funding.
The so-called Business Continuity Protection Program would provide policyholders with 80% of payroll, benefits and expenses for three months. Businesses would purchase the coverage through state-regulated insurance companies and brokers,
The plan was released in May by the APCIA, the National Association of Mutual Insurance Companies and the Independent Insurance Agents & Brokers of America, which together represent around 90% of the industry.
The APCIA’s Gordon said the plan addresses the root cause of many Covid-19 coverage disputes between policyholders and insurers by specifically covering viral events in business interruption policies.
The other plans would not alter some of the business interruption coverage issues relating to pandemics and viruses that have arisen during the current crisis, particularly relating to virus exclusions that accompany most business interruption policies, he said.
“It may help a small number, but it won’t help the significant exposure that the Business Continuity Protection Program would,” Gordon said of the Chubb and Maloney plans.
Chubb Chief Risk and Digital Officer Sean Ringsted said Chubb’s plan, much like Maloney’s, would evolve to address the concerns raised by the broader insurance industry plan.
The mere existence of competing plans from different corners of the insurance industry and Congress represent progress and a potential compromise, Seaman said.
“A workable framework for future pandemics may well be achievable,” he said.