The COVID-19 pandemic has rocked the United States and the sense of security of its citizenry in a way not seen since the tragedies of September 11th, 2001. The insurance industry, like the rest of us, is reacting in real time to the rapidly-evolving business climate, from managing the flow of claims to responding to federal and state-level mandates.
One of the many potential adverse consequences of the COVID-19 outbreak is the spike in demand for pandemic insurance coverage and the unavailability of adequate insurance and reinsurance markets to support business interruption insurance needs. The insurance industry dealt with a similar issue regarding the unavailability of terrorism insurance in the wake of 9/11, prompting Congress to pass the Terrorism Risk Insurance Act, or “TRIA” in 2002. As such, there is a blueprint in place for the U.S. government to step in and backstop pandemic insurance risks and provide adequate market availability for such products.
Indeed, certain members of Congress have been calling for the passage of a Pandemic Risk Insurance Act, or “PRIA”. In particular, on March 18, 2020, Maxine Waters distributed a memorandum to the democratic members of the House of Representatives calling for, among other things, the implementation of PRIA, which would “create a reinsurance program similar to [TRIA] for pandemics, by capping the total insurance losses that insurance companies would face.” While PRIA appears to be in its early stages, a number of ideas have been proffered by various industry participants, including backdating coverage to include COVID-19 losses, and combining both TRIA and PRIA into one, singular piece of legislation that would provide insureds a second opportunity to purchase both TRIA and PRIA coverage at an enhanced premium.
The unavailability of pandemic insurance coverage is not simply a prediction based upon recent events but is evident based on the simple fact that most business interruption policies issued in the U.S. today carve out pandemics and/or communicable diseases from coverage thereunder. As a result, many states are quickly acting to pass legislation or provide guidance to the insurance industry regarding the duties of insurance carriers to cover COVID-19 losses or otherwise explain to their policyholders their rights on their insurance policies, with New Jersey recently considering a bill that would require that coverage be provided for COVID-19-related losses even when expressly excluded from the terms of an insurance policy.
What PRIA will look like, if it does ultimately become a reality, is unknown at this point. If PRIA mirrors the framework of TRIA, it would join TRIA as one of the few pieces of federal legislation that would impose express obligations on surplus lines insurers as well and, moreover, domestic and international reinsurance companies will need to evaluate their rights and obligations under PRIA.
We will continue reporting on any developments relating to PRIA and COVID-19.
