Association’s propose federal program for “uninsurable” pandemic risk

U.S. insurance and reinsurance industry associations have launched a proposal for a industry-backed pandemic risk backstop, called the Business Continuity Protection Program (BCPP) as an alternative to the legislative proposal for a Pandemic Risk Insurance Act (PRIA) reinsurance backstop.

The National Association of Mutual Insurance Companies (NAMIC), the American Property Casualty Insurance Association (APCIA), and the Independent Insurance Agents & Brokers of America, Inc. said that the “industry-backed Business Continuity Protection Program (BCPP) would provide revenue replacement assistance for payroll, employee benefits, and operating expenses following a presidential viral emergency declaration.”

“Pandemics simply are not insurable risks; they are too widespread, too severe, and too unpredictable for the insurance industry to underwrite,” explained Charles Chamness, NAMIC’s president and CEO. “As we’ve seen in the past few months, pandemics are a national problem, and we need a national solution. NAMIC, APCIA, and the Big ‘I’ had one goal in mind in developing the BCPP – crafting a solution that would provide meaningful support for employees, businesses, and the economy as a whole.”

The BCPP proposal would provide protection against widespread economic shutdowns due to a future pandemic and is federally backed in preference to PRIA which requires industry financial support.

“A TRIA-like program, with an industry financial role, does not square with the fundamental notion that pandemics are not insurable risks. The risks are too fundamentally different in nature and scope,” the association’s said.

“We need a sustainable solution that provides simplicity, certainty, and immediate relief to impacted businesses,” David Sampson, APCIA’s president and CEO said. “The BCPP is designed to bolster the country’s economic resilience through timely and efficient financial protection and payroll support in the event of a future public health emergency. We look forward to continued dialogue with the business community to meet their needs in this vitally important public policy discussion.”

The model would see businesses able to purchase a level of revenue replacement assistance through state-regulated insurance entities that voluntarily participate in the BCPP.

The association say the BCPP would provide “simple, immediate relief for employers that are directed to close.”

“The small business community is looking to our industry to provide leadership to ensure there is immediate assistance available during future pandemics,” Bob Rusbuldt, Big “I” president & CEO added. “The BCPP is a simple, efficient, and effective plan to provide the needed financial security for American businesses. This program gets immediate funding to businesses when they need it most.”

The BCPP would see the Federal Emergency Management Agency (FEMA), alongside assistance from private contractors, providing the mechanism to administer relief to businesses, while the BCPP would purchase private reinsurance to protect taxpayers.

It’s a reasonable proposal and would meet the needs of giving businesses a way to purchase protection against pandemic related shutdowns that could occur in future.

While the support of private reinsurance markets, which could be the capital markets and perhaps in catastrophe bond or insurance-linked securities (ILS) form, would robustly back up the capital needs of the facility.

As this would be a revenue replacement tool, acting as a form of contingent capital for business owners, it seems that a parametric reinsurance solution could transfer the risk effectively to private market reinsurance companies or capital market investors, using a trigger based on the spread, or number of claims made from a pandemic or virus outbreak.

These proposals are likely to draw counter proposals as well, while the PRIA bills continue to run through legislative tiers for the moment.

Finding the right mix of government support, with the right route to distribute the resulting pandemic insurance product to business owners, with industry support in the form of reinsurance capital to underpin the pandemic exposure, seems like a good starting point.