The Federal Advisory Committee on Insurance (FACI) convened at 11:00 pm on 9 September 2021 viateleconference, with Dan Glaser, Chair, presiding.

hi accordance with the Federal Advisory Committee Act, the meeting was open to the public.Committee Members PresentDAN GLASER, Chair, Chief Executive Officer, Marsh & McLennanERIC ANDERSEN, Co-President, AonAMY BACH, Executive Director, United PolicyholdersBIRNY BIRNBAUM, Executive Director, Center for Economic JusticeQU1NCY BRANCH, Chief Executive Officer, Branch Benefits Consultants

GREG CRABB, President & Chief Executive Officer, Amerisure

BETH DWYER, Superintendent of Banking and Insurance, Rhode Island Insurance DivisionROB FALZON, Vice Chair, Prudential

LUCY FATO, Executive Vice President & General Counsel, AIG

MATTHEW GENDRON, proxy for Beth Dwyer

DOUG HELLER, Insurance Expert, Consumer Federation of AmericaJIM KELLEHER, Executive Vice President & Chief Legal Officer, Liberty MutualPETER KOCHENBURGER, Associate Clinical Professor of Law, University of Connecticut School ofLawJULIE SPORE, Chief Risk Officer, TransamericaANDREW STOLFI, Administrator, Oregon Division of Financial RegulationBETSY WARD, Chief Financial Officer & Chief Actuary, MassMutualAlso PresentROBERT HARTWIG, Darla Moore School of Business, University of South CarolinaROBERT GORDON, Senior Vice President of Policy and Research, APCIARAHUL PRABHAKAR, Deputy Assistant Secretary, Treasury’s Office of Cybersecurity and Critical

Infrastructure Protection

MARTIN SOUTH, Marsh, U.S., and CanadaDepartment of Treasury Staff Present

STEVEN SEITZ, Director, Federal Insurance Office

JIGAR GANDHI, Designated Federal OfficerAt 11:00 a.m., Jigar Gandhi called the meeting to order and introduced himself as the new DesignatedFederal Official (DFO) for FACI and stated he looked forward to working with everyone. Mr. Gandhi thencalled roll and asked members to state ifthey are present or if another person is attending with the member’sproxy.
Rob FalzonLucy FatoDoug HellerJames KelleherAndrew StolfiBetsy WardAmy Bach

Ms. Dwyer stated that she was able to attend the meeting until Noon, at which point Mr. Matt Gendronbecame Ms. Dwyer’s proxy. After calling roll, Mr. Gandhi stated that a quorum was achieved for themeeting.

Chairman Glaser welcomed everyone to the FACT meeting and reminded everyone to mute their lines unlessspeaking. In addition, he asked everyone to announce his/her name each time speaking to allow the

transcriber to accurately record the contents of the meeting.

Chairman Glaser then announced the retirement of Mark Thresher and that he would be leaving the FACT.Chairman Glaser thanked Mark for his contributions to the FACT and wished him well in retirement. AfterDirector Seitz’s remarks, the meeting primarily focused on ransomware and the COVID-19 Subcommittee.Chairman Glaser then stated that the FACT will hear a presentation from Rahul Prabhakar, regarding the

threats ransomware posed to the insurance sector. The FACT will then hear the final update from both work

streams of the COVLD- 19 Subcommittee. The meeting will close with updates from the Availability

Subcommittee, Protection Gap Subcommittee, and the International Subcommittee. Chairman Glaser then

turned the meeting to Director Seitz for an update from FIO.Update on Federal Insurance Office ActivitiesDirector Seitz thanked Chairman Glascr and the FACT members for attending the meeting and the effort onthe conmiittee’s work. Director Seitz thanked Mr. Thresher for his efforts on behalf of FACT over the years.Director Scitz stated that FTO continues to examine and consider many of the FACT’s recommendations and

looks forward to FACT’s continued engagement.

Director Seitz began with a discussion of FTO’s work on climate and that FIO intends to take a leadershiprole with respect to the insurance sector as it works to implement President Biden’s executive order onclimate-related financial risk. FTO’s climate-related work will provide an insurance-specific focus withinTreasury’s broader climate work, including working with Treasury’s climate hub. Director Seitz stated thatFTO recently issued a request for information to solicit public input on FTO’s future work on insurance sector

climate-related financial risk. FlO intends to initially focus on the following three climate-related priorities:

1. Assessing climate-related issues or gaps in the supervision and regulation of insurers, including the

potential impacts on U.S. financial stability.

2. Assessing the potential for major disruptions of private insurance coverage in U.S. markets that are

particularly vulnerable to climate change impacts, also facilitating mitigation and resilience for
sustainable future. FlO continues to engage with supervisors to tackle this important issue. Domestically,

FIOs is engaging with the NAIC and state insurance regulators through their various work streams on

climate-related topics. In addition, FlO also engages with the Securities and Exchange Commission andother members of the Financial Stability Oversight Council on climate-related risk. On the international

front, FIO is very engaged on these issues at the ITS, the UN’s Sustainable Insurance Forum, and the

Organization of Economic Cooperation and Development. All these organizations are increasingly focusedon climate-related issues. FIO also discusses climate-related issues with insurance authorities in the

European Union and the EU-U.S. Insurance Project. FIO also looks forward to engaging with this

Committee on these important issues.Director Seitz stated that FlO hopes that the responses to the RFI will help FIO assess the implications of

climate-related risk for the insurance sector. Questions have been segmented in the RFI under certaincategories, including the executive order, FIO’s initial climate-related priorities, climate-related data inFIO’s data collection and data dissemination authorities, insurance supervision and regulation, insurancemarkets and mitigation resilience, and finally, engagement. FlO looks forward to ongoing engagementwith the insurance sector and stakeholders on this important area and plans to reach out individually tomembers of this Committee about the RFI and work to develop next steps with FACT’s work in this area.

Next, Director Seitz provided an update on the request for information seeking input on FlO’s future work

related to monitoring the availability and affordability of automobile insurance. FIO received over 17

responses from various stakeholders, including consumer representatives, industry representatives, state

insurance commissioners, state attorney general, and others. The FlO team is continuing to analyze the

responses to the RFI and plans to provide additional information on those responses in its upcoming annualreport. FIO recognizes that the Availability Subcommittee has spent considerable time on this issue,

including receiving presentations from Treasury staff and other interested stakeholders. FIO will continue

to prioritize this work in the private auto insurance sector and looks forward to continuing to engage withFACT.Director Seitz then moved to some international items at the ITS. The second year of the monitoring period

for the Insurance Capital Standard is currently underway, with the data submission being due for the ICSand the AM data collections. The work on comparability is also ongoing at the uS. The definition ofcomparable outcomes and the six high level principles were finalized and published in May. The IAIS has

stated that it intends to publish a public consultation on these draft criteria in the fourth quarter of this year.

FlO looks forward to continuing engagement with the FACT Subcommittee in this area.Director Seitz then discussed that the 2021 global monitoring exercise has returned to its primary purpose,

and the TAIS has recently completed a two-year regular sector-wide monitoring and individual insured

monitoring data exercise. Next year, the IAIS is still on course to complete the outstanding implementation

assessment items and finalize those findings. FIO will continue to engage with members of the U.S. at theuS on this work and are also mindful that FACI has given us recommendations in this area.Director Seitz finally discussed ransomware and that FIO is working to address insurance-related issues, incoordination with interagency partners and stakeholders across the industry. Ransomware poses a complex
existing forums, such as the FACT, to better understand the challenges facing the insurance sector and the

impact these attacks are having on the cyber insurance market.

At this time, Director Seitz concluded his overview of FIO’s work and introduced Rahul Prabhakar. Mr.Prabhakar serves as the deputy assistant secretary for the Office of Cybersecurity and Critical InfrastructureProtection and recently joined Treasury. Director Seitz then turned the floor to Mr. Prabhakar.

Presentation and Discussion on Impact of Ransomware

Mr. Prabhakar stated that he would begin by discussing the role of OCCLP, Office of Cybersecurity andCritical Infrastructure Protection. After this, he will discuss ransomware, which is a significant type ofmalicious cyber activity that affects sectors across the economy. OCCIP executes Treasury’sresponsibilities as the designated sector risk management agency for the financial services sector; the office

is responsible for working with the private sector, the financial regulators, and with other federal agencies

to identify and address risks to the operational resilience of the financial sector critical infrastructure.

OCCIP has a statutory responsibility to:

1. Support sector risk management.

2. Assess sector risk.

3. Facilitate information sharing.

4. Support incident management.

5. Contribute to emergency preparedness efforts; and6. Coordinate all work with the financial sector.

Mr. Prabhakar stated that OCCIP also works with international partners through the G7 Cyber Expert

Group, and bilaterally on operational resilience matters. The insurance industry is an important part ofthis

mission. Because the insurance industry is an important part of this mission, and in recognition of the

importance of efficient risk transfer to the American economy and financial stability, the provision ofinsurance services has been designated by the Cybersecurity and Infrastructure Security Agency as one of

several national critical functions within the financial sector.Mr. Prabhakar stated that one of his top priorities is to expand OCCIP’s capabilities with respect to

identifying, assessing, and prioritizing operational risks and resilience across the sector, while continuing

to drive improvements to existing programs and deepen the level of engagement across the public-privatepartnership. OCCTP plans to use this approach to address ransomware, which is a principal priority of the

administration and the Treasury Department.Mr. Prabhakar then stated that the Treasury’s counter-ransomware strategy relies upon an effective

public-private partnership. Financial institutions and their service providers, industry associations, and

regulatory agencies all play a role in improving financial sector preparedness and resilience against aransomware threat. The ability to effectively underwrite cybersecurity risk is a critical resilience concern.

Concerns are increasing regarding the ability of insurers to gain enough insight into the true resilience of

the insured to appropriately price their coverage. OCCTP understands that sometimes, when cyber insurers
(CISA) reports that roughly $350 million in ransom was paid to malicious cyber actors in 2020, which is a

more than a 300 percent increase over the previous year. Treasury infers that some of that loss was

indemnified by U.S. cyber insurance providers. Insurance companies also have not been immune to attack.In the second quarter of 2021, half of all ransomware attacks reported by financial sector firms werereported by insurance firms. From public infonnation, OCCIP identified as many ransomware attacks in

the second quarter of 2021 as it identified in all of 2020.The most sophisticated ransomware attackers are aware that many of their victims will look to their

insurers to cover their losses and are sizing their ransom demands accordingly. Mr. Prabhakar stated thatstakeholders should consider how the underwriting process may need to adapt. The current process, whenit involves static certification of controls by insurers, may not be sufficient to reduce risk to policy holdersdue to the speed with which ransomware threats evolve. The effects of ransomware evolution extend toall aspects of preparedness. Very quickly, analysis and guidance are circumvented over time by cybcrcriminals’ adaptive techniques. To address these challenges, OCCIP seeks to work collaboratively across

the public and private sectors to identify effective cyber hygiene and resilience practices to combat

ransomware and the challenges firms face in implementing these practices. OCCIP views existing fora,

such as the FACT, the Financial and Banking Information Infrastructure Committee, the Financial

Services Sector Coordinating Council, and the G-7 Cyber Expert Group as appropriate venues in which to

have these discussions and collaborate on these efforts. Mr. Prabhakar stated that his goal is to fostercollaborative exchanges with partners. Each partner brings unique information, expertise, and capabilitiesthat can drive enhancements to the work we currently do and enable broader situational awareness ofthreats and vulnerabilities and risk assessments to the sector.Mr. Prabhakar stated that Treasury has heard from insurers that stronger security and resilience controls

among the insured correlate to positive outcomes; they don’t think it is impossible to combat ransomwareas a security threat. As OCCIP works with the CISA, the Financial and Banking Information andInfrastructure Committee, and others, to strengthen security standards and baselines, OCCIP intends to

harmonize our efforts, which are never complete. Ransomware attackers very quickly become aware of

any such effort and will alter approaches to adapt and continue predatory business models. To succeed, the

public-private partnership must become more efficient in the analysis of adaptive cyber threats and in the

identification and promulgation of best practices in preparedness and response.

Mr. Prabhakar stated that barriers to the efficiency of threat information sharing must be identified andremoved along with maximizing availability of that information to analysts, while preserving the equitiesof victims, law enforcement, and other involved parties. This goal requires focused work across thepartnership; OCCIP looks forward to discussing approaches in this venue and others. Mr. Prabhakar

emphasized the criticality of information sharing and data exchange within and across the public-private

partnership, which is the foundation that supports and enables all the activities across the shared mission to

reduce risk and enhance resilience in the financial services sector. Eliminating barriers to threat information

sharing and maximizing availability of information to analysts is imperative and a priority for Treasury and
variants, identify relevant indicators of compromise, and recommend defensive measures to protect againstthreat. OCCLP also seeks to improve incident reporting, which can enable government actions that disruptransomware actors and their ability to profit from perpetrating risk for attacks. Treasury can improve theutility of incident reporting by making it clearer why firms should report ransomwarc attacks, what

information they should report, to whom they should report, and how that information will be used toimprove cyber hygiene across industry. Mr. Prabhakar thanked the FACI for the opportunity to speak and

welcomed questions.

Chairman Glaser thanked Mr. Prabhakar for his presentation and stated that everyone on the FACT call hasconcerns around cybersecurity, which is one ofthe highest risks, if not the highest risk that most companiesare facing. In the insurance industry, a lot of the focus is how to serve clients and how does industry

improve risk management and hygiene.

Update from the Subcommittee on COVID-19 -Workstream #1 UpdateChairman Glaser then turned to the Subcommittee on COVII)- 19 for its final report to FlO, starting withan update from the protection work stream. The FACT will then vote on recommendations from the

preparedness work stream. Questions will be taken at the end if time allows. Chairman Glaser remindedthe FACT that the protection work stream was charged with reviewing strategies to build resilience against

future pandemics. Central to that theme is the role of data analytics and helping government and economies

make informed decisions about protecting against future catastrophic events. The FACT’s goal was to

provide FTO with as much information as possible to allow it to analyze and make informed decisions about

the impact ofthe pandemic on the insurance marketplace. Many high-quality studies have been shared withthe FACT; Chairman Glaser then introduced Martin South, his colleague and the president of Marsh for the

U.S. and Canada and asked him to provide a short summary on Marsh’s most recent pandemic report.

Mr. South stated that he intended to lay out the case for insurability and the role for public-private

partnership in the insurance industry. Mr. South stated that the Marsh report states that the insurance

industry, as always, has played a role in dealing with huge volatility and highly difficult risks. The

pandemic produced an unprecedented risk in terms of how it hit insurers, both on the asset side of thebalance sheets and the breadth of it and the global reach of it. However, it’s the size of the risk that makes

this risk highly uninsurable in some respects. Marsh’s argument is that by putting together a scheme thatwill bring together the government and the insurance marketplace, we can create a solution that will creategreater resilience in the insurance industry and for society.Mr. South explained the way the insurance industry responded to the issue and gave some numbers aroundthe pandemic’s insurance implications. While the COVID pandemic has remained uninsurable, ranges ofclaims exist in the insurance industry between $30 and $100 billion across all lines of coverage. Mr. South

also stated that a huge amount of anxiety is being created with policy holders and with clients, given theenormous uncertainty of the range of claims. Insurers have asserted that no pandemic coverage exists in

policies. In policies where coverage does exist, significant legal activity is still ongoing. Mr. South pointed

out the TBNRs are the official reserves and are approximately $20 billion. If the pandemic exists for many

years, huge uncertainty will continue to exist. Marsh clients are seeing generally shrinking capacity across
development has been the doctrine of rebuttable presumptions, where people that were injured at work incertain industries canjust assume that they contracted that disease at work. Coverage for event cancellation,

which once was freely available, has gone up by up to 400 percent, deductibles have increased, and event

cancellation coverage is now becoming highly difficult to obtain. Many DNO claims are asserting thatdirectors and officers should have been aware of the effects of the pandemic, the volatility of the share

price, and of employment practices liabilities.Mr. South continued that these factors are creating uncertainty and difficulty for Marsh clients. Marsh’s

argument is that if a solution were to be created which was able to pool the insurance industries to deal with

the mechanics of an insurance solution to provide a policy language that could provide certainty that there

is coverage and eliminate the risk of fraud, along with sharing that risk with the government in the way thatinsurance solutions were developed after the Great Fire of London or after 9/11, resiliency can begin to be

built into the industry. In parallel, insurance risk management techniques and other ways of creating

resilience would take root in industry. After 9/11, risk management techniques immediately apparent

included providing security at buildings and enhanced security screening. As risk management techniquesevolve and as data is generated and considered, the ability to create risk management solutions will all help

us mitigate the risk going forward.

The benefits of modeling enable capturing pricing and developing solutions for pandemic. However, from

a risk management standpoint, insurers are looking backwards and did not adequately gauge the likelihoodof the pandemic occurring. Before the pandemic, take up rates were low. However, now take up to the

product has increased. If insurers had been offering this product, significant increases in capital and returns

in the insurance industry would have existed. Risk management techniques would improve, and theinsurance industry would be able to absorb more of the risk. While predicting the nature of the next

pandemic event is difficult, the occurrence of an event is likely, and the insurance industry will be prepared.The insurance industry has always had a role to deal with massive, unexpected events. Being prepared,

combined with resilience, new risk management techniques, the right partnership will create much greater

resilience in society, which will remove the burden and uncertainty to business owners. The infrastructureof the insurance industry, the claims paying, loss adjusting, risk management will be put in use. Claimswill be paid quickly, greater certainty will exist, and fear will be removed from the system.

Mr. South stated that resilience will take time and support, but that Marsh does not take the view that

pandemics are not insurable. While insuring a pandemic is a huge and difficult risk, the size of the balance

sheet needs to absorb it. Even $910 billion in surplus in the P&C industry is not nearly enough since most

of that capital is committed. However, a share of the surplus could start to create risk tolerance. Marsh is

not advocating for a specific solution in the insurance industry — Marsh is open to any ideas. Marsh does

like the idea of a parametric solution, which removes uncertainty, so long as any solution contains antifraud preventions. Marsh would like to leverage the risk management expertise in the insurance industryand create certainty for its clients, so there’s greater resilience for society going forward.Chairman Glaser thanked Mr. South for his presentation asked Greg Crabb to introduce Robert Gordon of

the American Property Casualty Insurance Association (APCJA) and Dr. Robert Hartwig. Mr. Gordon is

currently APCIA’s senior vice president for policy research and development and has over 30 years of
Affordability of Pandemic Risk Insurance from Rand and that Lloyd Dixon, from Rand, was on the call forany questions. Mr. Crabb also stated that all members of FACT received the Pandemic Business Interruption

Insurance work from John Ondrejko of the Committee on Capital Markets Regulation, who is also on the

call for questions. At this time, Mr. Crabb turned the floor to Mr. Gordon and Dr. Hartwig.Mr. Gordon stated that APCIA represents insurance underwriters, who are the people that would bear some

of this risk, opposed to those selling it and asking others to bear it. Mr. Gordon stated that he has 30 yearsworking on federal insurance issues, and that issues seem to arise when policymakers race to solutions

before securing a consensus on the underlying problem to solve. None of the prospective pandemicproposals have gained traction, either domestically or globally, in part because the problems to be solved

have many layers that have not been fully considered.Mr. Gordon continued that many lessons have been learned about COVID-l9. At the beginning of the

pandemic, experts warned ofthe physical contamination risk, but the U.S. Center for Disease Control foundthat there is minimal COVID surface transmission risk. Consequently, surfaces without contagion for 24

hours do not even need to be cleaned, and COVID can be immediately eliminated, fixed from surfacesusing soap and disinfectant. The CDC’s findings underscore that no property damage from COVifi hasoccurred. However, damages have resulted from transmission from human breathing in proximity. Next,most pandemic losses did not result from government shutdowns. Instead, losses resulted primarily froma plunge in consumer macroeconomic demand for in-person services. Several of the legislative proposalshave provisions providing coverage for three months of business continuity losses, which was roughly the

duration of the government closures, but the pandemic losses have now been going on for 18 months andcounting. Many policymakers did not understand that business interruption insurance is a property policy.

Business interruption insurance covers losses while businesses fix their physically damaged premises.However, the CDC has shown that COVID does not cause physical damage, and business interruption

coverage has very little to do with the pandemic losses.

Mr. Gordon stated that some have compared pandemic losses to terrorism, specifically 9/11 and presented

a graph that shows COVIB-19 has caused trillions of dollars in losses, while the 9/11 losses and the global

business interruption premiums are in the tens of billions, rather than trillions. Mr. Gordon continued thatthe issue is greater than insurance companies needing government assistance with their balance sheets; at

least 13 different kinds of pandemic losses exist that require separate examination and solutions. In

addition, no one size fits all approach exists. Worker support has been the biggest pandemic cost in mostcountries. Policymakers need to decide whether it’s better to pay for employees to stay on the business

payrolls, even if they’re not working, and which groups of workers and industries to target. This issue isparticularly important because we often hear about the importance of private insurance to encourage risk

mitigation.

The primary way the businesses mitigated their losses during the pandemic was by terminating a near record

number of employees, causing mass unemployment. Terminating employees is not the type of mitigationthat aligns with public policy needs. Many businesses receiving government assistance used it to transitionto a remote workforce, or they replaced in-person services with carryout and delivery. These shifts supportmaking transition payments government loans, rather than indemnification payments from insurers. While
macroeconomic consumer demand for in-person services. Some industries, like dry cleaners and airlines,were allowed to remain open, but suffered enormous losses. However, some industries that werecompletely locked down remained profitable. The gains and losses represent a shift in consumer demand,not any sort of property damage. The Hartwig, Gordon, Eisenhuth papers also include a comparison ofthegross domestic product of the states that imposed lockdowns versus those that did not. The states with

lockdowns had only slightly worse economic performance, like that of pre-pandemic - the civil authorityorders were not the primary loss factors. Mr. Gordon then showed a graph that demonstrated that COVIDlosses were very unevenly distributed in the economy. The losses were concentrated overwhelmingly in

the leisure and hospitality sectors. Leisure and hospitality sectors have a highly disproportionate number

of low-wage and minority employees and have the greatest impact.

Mr. Gordon stated that he wanted to make three points, since over a dozen layers of losses exist and each

needs to be separately considered. He does not advocate a one size fits all approach. The first point is thatemployment assistance is the most essential government program needed. Employee assistance can be

targeted towards the most impacted sectors, with the most vulnerable workers. The macroeconomic federal

stimulus protecting those workers and businesses against the plunge in consumer demand for interpersonalservices is essential but has little to do with and is beyond the scope of property casualty insurance. At this

point, Mr. Gordon transitioned to Dr. Hartwig to address uninsurability.

Dr. Hartwig stated that many organizations around the world have come to the same conclusion - that

pandemic-related business income losses are not privately insurable. Dr. Hartwig cited the Wharton

Center’s recent study, which showed that correlations of complexity of pandemic risk, as evidenced byongoing COVID- 19 losses, far exceed traditional parameters that define the concept of insurability forprivate insurers and re-insurers. Pandemic-related losses can easily exceed the industry’s capital surplusand premium resources. Estimates are that monthly business continuity losses in the U.S. are potentially200 times greater than the $4.5 billion that insurers collect monthly across all commercial property lineshere in the United States. Business continuity losses for small businesses, alone, could completely consumethe industry’s entire capital base in about four months.Adjusting these claims would take years. Dr. Hartwig then pointed out six major traditional criteria

associated with insurability. He then moved to the need for information, which is the life blood of theinsurance industry. Information allows the industry to see loss frequency and severity. Withoutinformation, the industry is not able to price pandemic risk. Losses need to be fortuitous - they need to besome sort ofrandom element to them. However, decisions by government officials across the country about

when, where and how to restrict movement and close businesses were intentional in nature. Also, highly

correlated losses are a problem — most every business in the United States was impacted simultaneously,

which is a difficult risk to bear. Even if insurance were available, it would likely not be affordable to mostbusinesses.

Dr. Hartwig concluded that pandemic-related business income losses lie beyond the bounds of insurance inthe private sector for multiple reasons, including Mr. Gordon’s observation that such losses were largely

the result of macroeconomic factors. Only the government, with its unique authority to tax, can shift and

spread expenditures ofrisks ofthis magnitude overtime. Dr. Hartwig then showed a slide that demonstrates
Subcommittee on COVID-19 — Workstream #2 Update

Betsy Ward reminded the FACT that, as the COVID-19 pandemic continued, the Preparedness

Subcommittee reviewed a wide variety of actions taken to better serve consumers in these challenging

circumstances. Challenges identified by our subcommittee related to adjusting to allow for more touchiessbusiness transactions, resource allocation to deal with both the change in operational capacity and newpriorities, as well as companies responding to an influx of requests for extending payment grace periods

and other individual policy changes. In response to COVID-19 and its unique wide-ranging implications,several states issued bulletins directing insurers to provide their policyholders who may be experiencing afinancial hardship due to COVLD with grace period relief to pay insurance premiums.

To facilitate a consistent and coordinated approach for premium relief, the COVID Preparedness

Subcommittee has worked, over the last year and a half, to draft recommended premium relief principles

that have remained outstanding due to lack of consensus amongst us, the FACI. The Subcommittee like totake one last shot at incorporating the FACI request to enhance our recommendations and remain inclusive

of the varying perspectives that we have. The subcommittee has taken the advice and additional help fromregulators and property casualty insurers who volunteered to contribute to the Preparedness Subcommittee.

Ms. Ward thanked those members for their assistance. Ms. Ward stated that the subcommittee wants to

facilitate consistent application in similar situations across states and territories for clarity to consumers andinsurers, as well as efficiency in operational implementation. This will lead to appropriate pricing of

premium relief in insurance and more transparency to consumers. The subcommittee considered two topics

in these premium principles. First is attempting to define what we meant by state of emergency, which hascontinued to evolve. Many different types of emergencies exist where premium relief might be granted.

Ms. Ward then presented a definition for “state of emergency,” which is a two-part proposal in the event of

a national public emergency where widespread curtailment of normal business activity occurs. Thesubcommittee also included that the definition had been enhanced by including language that the definitionis including, but not limited to, a pandemic like COVID-l9.

Ms. Ward stated that Topic 2 relates to how to take the initial principles we had that were predominantly

life insurance focused and edit them to incorporate property casualty. For the most part, it’s incorporating

the words property and casualty. We found that these principles do apply to life and property casualty,noting that we have premium payment relief for up to a total of 90 days. Some states have varied by thecoverage because of the contract lengths. Rather than trying to be so specific and prescriptive, we inserted

language stating up to 90 days. Many states determined that this may not be applicable in all situations.

The subcommittee added a principle where if a premium is owed and a claim is paid during that period,that the claim payment would have the premium owed netted against it and the balance of the claim wouldbe paid. Ms. Ward stated that the proposal may not be as comprehensive and detailed as some would like,but the proposal represents the subcommittee’s attempt at describing premium relief principles, considering

all the parties involved. Ms. Ward opened the floor for questions.

Chairman Glaser stated he intended to ask for a motion for the recommendation and then open the floor to

discussion. Once discussion is complete, a vote can be taken. Chainnan Glaser stated he will start with a

voice vote. Ifthe voice vote is not clear, a recorded vote will be taken. Chairman Glaser reminded everyone
Bimy Birnbaum stated that the language in the proposal is fine, but the proposal is missing some language.

Certain of lines of insurance have experienced radical reductions in exposure, with the result that some

lines of insurance had massive COVIIJ windfall profits. This proposal must include providing premium

relief for lines of business experiencing significant reduction in exposures to reflect such reduction in

expected costs. Mr. Bimbaum stated that without this language, he could not support the proposal. Ms.Ward stated that Mr. Birnbaum’s concern was discussed, but consensus could not be reached. The

subcommittee wanted to have principles to propose, as a starting spot to FIO, as opposed to having nothing

to present.Chairman Glaser asked Mr. Birnbaum if he wanted to propose an amendment. Mr. Birnbaum proposed anamendment on the screen for everyone’s review. Ms. Ward asked Mr. Birnbaum where the language shouldbe inserted to which Mr. Birnbaum stated somewhere under No. 1 at the beginning of the lettered items.Ms. Ward asked if Mr. Bimbaum wanted his language included in the definition of a state of emergency.Mr. Birnbaum stated that his amendment should be inserted in Topic 2.Lucy Fato asked if the subcommittee considered how state insurance regulators would view this or if the

NAIC had been consulted. Ms. Ward stated that the NAIC had not been consulted. However, regulators

sit on the committee who are associated because they’re NAIC insurance commissioners. Ms. Ward stated

that the subcommittee has the chair of the C committee, who commented on this. However, the

subcommittee does not have the specific NAIC endorsement of principles proposed by the subcommittee.

The NAIC continues doing work but has not completed their work such that it could be incorporated.

Chairman Glaser asked for any further discussion of Mr. Birnbaum’s amendment. Once discussion of Mr.Birnbaum’s amendment is completed, the members will vote. Eric Anderson stated that Mr. Birnbaum’samendment is prospective in view and assumes it’s the only factor that is driving profitability or price. Mr.Anderson stated that he struggles on how to execute it with the other factors that might create more of achallenging environment versus the reduced exposure. He further stated that the language assumes that a

pandemic will lower the cost, and other factors may exist. Ms. Ward responded to Mr. Anderson that the

subcommittee did have the input from not only property casualty insurers, but also the APCL&, who

commented that when there is a reduction in exposure, that goes into the setting of premiums going forward.Ms. Ward stated that one of the issues discussed that 9/11 was a different fonn of a national emergency,with widespread disruption of business in many areas of the country. One issue with which the

subcommittee struggled was how long a national emergency lasts.

Mr. Birnbaum requested to comment, and Chairman Glaser stated that he would have the last comment

before the vote. Ms. Ward stated that at least two people have their hands up. Amy Bach stated that she

had her hand up for the first presentation. Andrew Stolfi stated that discussions among commissioners and

stakeholders have been occurring around this issue. States have taken different approaches with some

requiring refunds, others requiring studies, others doing other things. Mr. Stolfi stated that he saw some

benefit in addressing premium relief and that a potential compromise might be available, instead of ordering

or requiring premium relief. The exact circumstances cannot be anticipated. Mr. Stolfi advocated insertinga requirement to study and explain when filing new rating, which would require an evaluation and

explanation for the factor. The evaluation and explanation would detail how experience and other things
been amended to reflect this. Mr. Heller stated that Mr. Birnbaum

s proposed language is not so

prescriptive. Mr. Birnbaum’s language states that during a situation such as a pandemic, where a dramatic

change occurs to the exposure to risk of loss, premium relief is something that should be provided. FlOwould be saying that these are parts of the overall response picture. Mr. Heller stated that how states

implement this will be a way that the states can interact with their carriers. Mr. Heller continued that an

overarching principle should be having a principle of providing relief when a drop in exposure occurs, asMr. Birnbaum described.Chairman Glaser then turned to Mr. Bimbaum for comment on his amendment. Mr. Birnbaum made fourpoints:

1. The proposal contains principles. None of the items, including waiving late premium penalties, is

requirements.

2. Second, most insurers did some form of premium relief. The concept that premium relief is a

radical notion is belied by the fact that most insurers did this model.

3. Some confusion exists about current versus prospective. The issue is that current premiums, for

example, in March 2020, became excessive because of dramatic changes from the assumptions

underlying the development of the rates that were then enforced. The premium relief is for the

current rates, not prospective rates.

4. The fourth point is that several factors go into the consideration of rates. lisurers developed the

methodology in March of 2020 that was remarkably accurate, in terms ofthe need for personal autopremium relief. None of this requires extraordinary activity on the part of insurers. It does requireregulators to start collecting more data than they have in the past, but they’re doing that anyway forcertain things associated with the pandemic.

Mr. Bimbaum stated that due to these four points, he asks the committee to endorse his amendment.

Chairman Glascr added that the language is not a procedural amendment, but a major amendment. Two

thirds of votes cast would have to be in support of it. At this time, Chairman Glaser asked for a vote onMr. Birnbaum’s amendment and asked for a voice vote and a chorus of ayes was heard followed by a chorus

of nays. Chairman Glaser asked Mr. Gandhi to perform a roll call vote. Mr. Gandhi added that proxy

voting is not allowed on major items and that any proxies cannot vote.Mr. Gandhi confirmed that the following individuals were not on the line initially: Superintendent Dwyer,Representative George Keiser, Sean McGovern, Vicky Schmidt, and Bill Wheeler. Mr. Gandhi stated thathe would count the votes and that nine yes votes were needed for the amendment. Mr. Gandhi counted

seven votes in favor of the amendment. The amendment failed.Chairman Glaser then went back to the original motion and asked for any amendments to the original

language that Ms. Ward shared. No comments were heard. Chairman Glaser asked for a voice vote with a

chorus of ayes that were followed by a chorus of nays. Chairman Glaser stated that he believed the ayes

had more than the nays and advocated that the motion pass. Mr. Gandhi stated that he would be more

comfortable with a roll call vote.
Mr. Gandhi called roll and announced that the motion carried.Update from the Subcommittee on the Availability of Insurance ProductsChairman Glaser then moved to the availability subconmiittee, which is co-chaired by Mr. Birnbaum and

Mr. and George Keiscr. Since Mr. Keiser was absent, Chairman Glaser asked Mr. Bimbaum to providean update.Mr. Bimbaum stated that the subcommittee met a couple oftimes since the last FACI meeting. At the firstmeeting, the subcommittee discussed the auto insurance request for insurance from FlO with FIO staff.Among the issues discussed were FlO’s capacity for data collection and analysis and how that might impacton some of the recommendations. At the second meeting, the subcommittee heard a presentation from atelematics vendor focusing on their efforts to analyze and remove racial bias in their telematics algorithms.

The discussion revealed an example ofstructural racism affecting insurance. The vendor noted preliminary

research that bad driving behaviors used in the algorithm were similar across different communities,

including communities of color, despite disproportioned incidents of driving in pedestrian citations in

communities of color reflecting disproportionate policing in communities of color.

Mr. Birnbaum stated that he wanted to alert the full Committee that HUD has proposed to revert its disparate

impact rule from the one that was adopted a couple of years ago back to the one that was in force since

2013. The subcommittee will probably discuss the HUD rule in an upcoming meeting. Mr. Bimbaum

stated that he hopes that FlO supports that effort and changes the recommendation in the prior Treasury

report. Mr. Bimbaum concluded his report.

Subcommittee on FlO’s International Work

Chairman Glaser turned to the subcommittee on FlO’s international work and asked Mr. Falzon to give an

update. Mr. Falzon stated that the subcommittee did not meet over the summer. However, the

subcommittee did identify in its last meeting that several pending and soon to be in the market requests for

response information and commentary is coming from the uS. Mr. Falzon stated that the subcommitteehad indicated that it was important for FlO to remain engaged and to take the feedback andrecommendations that the subcommittee had provided earlier. Three issues will be arising soon or are in

the process of arising:

1. A public consultation on the Phase 2 work on liquidity metrics, which is part of a systemic risk

assessment.

2. The consultation around the aggregation method, which is a part of integrating our U.S. group

capital standard into that international framework. FlO and the subcommittee needs to payparticular attention to this work.

3. The latest installment on the global insurance market report, which covers a variety ofthings around

climate, financial stability, and an assessment of insurers’ exposure will be arriving soon.

Mr. Falzon stated that the subcorrimittee did provide some commentary in its last meeting around a report
Partnerships and Other MechanismsChairman Glaser then turned to the Protection Gap Subcomniittee and asked Ms. Bach for an update on the

subcommittee’s activities.

Ms. Bach stated that she chaired the subcommittee with Sean McGovern, who is not present. The

subcommittee has not met in a while but has been making progress in responding to the charge that related

to Senator Feinstein’s letter to FlO specifically addressing the protection gaps in the California home

insurance market related to wildfires. The entire FACT heard a presentation from Roy Wright. Thesubcommittee has had successes in responding to Senator Feinstein’s charge. Joel Laucher, a member of

Ms. Bach’s team, presented to the subcommittee that after a year of work, the subcommittee has issued 13recommendations for wildfire risk reduction standards. The subcommittee worked very closely with Mr.Wright and his team. Mr. Wright’s entity has announced that they will be issuing their own standards. By

the end of this year, the subcommittee will have made substantial progress in California in putting a set of

standards into place that will facilitate mitigation and lead to insurance-related mitigation rewards. Ms.

Bach added that Mr. McGovern’s team has done good preliminary work on a draft of recommendations.

The subcommittee will review the recommendations and give a report at the next FACI meeting.

Questions on the APCIA Presentation

Chairman Glaser thanked Ms. Bach for her update and asked if anyone had questions or comments fromthe earlier presentations. Mr. Kochenburger asked Mr. Gordon if the numbers in terms of what the actual

losses are, industry capability, and capital, does this calculate or include, for example, what the limits arefor these policies, either the sublimits --or if there’s a separate sublimit for business interruption --or their

policy limits generally? Mr. Kochenburger added that a big difference exists between what the actual loss

is and what, if covered, the specific policy limits are. Mr. Kochenburger asked ifthese factors included or

not included in the evaluation. Mr. Gordon responded that the business interruption policies don’t usuallycover most of the losses because the losses do not cause physical damage. Mr. Gordon referenced the CDC

finding that no or very minimal surface transmission risk exists. Mr. Gordon stated that he was not aware

where people were contracting COVID from surfaces. The losses are resulting from a shift in consumerdemand. Mr. Gordon stated that since the damage is not property damage, no coverage exists in most ofthe cases. Federal and state courts have been overwhelming upholding the no property damage principle.Mr. Kochenburger stated that first coverage must be determined. The actionable loss is very interesting,whether it’s actual loss or business loss and if it is covered or not covered. Mr. Kochenburger asked if the

industry capital included limits and added that, assuming coverage, a business may have $10 million worth

ofloss, but their property policy that includes BT may only cover $500,000 or $1 million. Mr. Kochenburgerasked about the calculation and stated that the most relevant factor is not what the total loss is and whether

the insurance industry can afford it, but, assuming coverage, applying the coverage limits in those policies

would be the actual exposure.Dr. Hartwig stated that the courts have ruled no coverage exists in most cases. If no physical actual loss ordamage to covered property exists from a covered peril, you cannot trigger the business interruption loss
Ms. Bach asked to be recognized and stated that the conversation was frustrating to her. Ms. Bach statedthat she wanted to ask the same question that Mr. Kochenburger asked. She stated further that Mr. Gordon

and Dr. Hartwig Peter are repeating the same kind of PR line that they’ve been saying from the beginning.Ms. Bach stated that she wants to know if Mr. Gordon and Dr. Hartwig are saying is that no 30-day periodof restoration exists or that no policy limits on the business interruption policies that have been sold? Ms.Bach stated that everyone knows that the industry is very nervous. However, she stated that it is not truethat no coverage exists; some claims are proceeding forward, some claims are being paid, and some of the

lawsuits are proceeding forward. Ms. Bach advocated that the FACT focus on the heart of the matter — the

pandemic is not an uninsurable risk because hotel cancellation losses were paid prior to this version of thevirus. Ms. Bach stated that Dr. Hartwig and Mr. Gordon espoused that no property damage occurredbecause nothing was broken. However, decades of case law state that air can be damaged. Ms. Bach askedwhat the numbers are in this circumstance in terms of the potential insured losses based on the policies thatdo not have virus exclusions.Mr. Gordon responded that he and Dr. Hartwig wrote and discussed that at least 13 different layers of losses

exist in pandemic situations. Some of the losses have insurance coverage, such as workers’ compensationlosses. The courts are currently considering several liability lawsuits. However, litigation involving

business interruption insurance, around 90 percent ofthe motions to dismiss those filings have been grantedby the courts. Courts have stated that without physical damage, the business interruption coverage cannotbe paid. Policy limits could be applied on some future policies. An earlier presentation detailed a policy

developed where a small number of policies were sold before the insurers discontinued the product. Theindustry quickly realized before the pandemic and before there were tens of trillions in losses, pandemic

risk cannot be covered. The NAIC has stated that insurance only works when you have a very large poo1of risk and a small number of people having losses, so that you can spread the losses within the large poo1.With COVID- 19, most of the 76 percent of the small businesses receiving PPP loans all had losses at the

same time. Insurance is not typically well suited for this kind of global pandemic, where virtually every

policy holder suffers significant losses at the same time for an extended period.Chairman Glaser recognized Mr. Birnbaum who stated that he appreciated the work by the subcommitteeand how to respond to the next pandemic. Mr. Birnbaum continued that he appreciates efforts looking atpublic-private partnerships to see where the insurance industry can contribute. Mr. Birnbaum stated thathe is disappointed in the APCIA straw man arguments, where they sort of throw their hands up and say this

is just simply uninsurable. Their arguments are not valid. The question is not whether insurance could

cover an event like a pandemic event. Insurance covers everything. All insurance specifies coverage limits.Property insurance providing full reimbursement of all losses for all perils does not exist. Coverage limits,

exclusions, and deductibles exist. No reason exists that similar coverage limits, that facilitate underwriting,are not possible. Mr. Birnbaum stated that to argue that pandemics are uninsurable is ridiculous. Espousing

that pandemics arc not insurable tarnishes the insurance industry. For a trade association to state that apandemic is uninsurable is not doing any service to the industry the association is supposed to represent.

Examples of insurance covering losses resulting from government actions exist; a variety of lines ofinsurance exist to provide coverage specifically for government actions. A history of pandemics exists, andcoverage was available. While most insureds did not opt for coverage, coverage was available.
committee had learned much from the COVLD Subcommittee and hopes that the FACT has provided a

service to FlO in furthering the debate. Chairman Glaser mentioned that Mr. Bimbaum’s point about thefuture holds true and different approaches will be presented. Many FACI members are still enthusiastic

about the notion of creating some PPP that provides and builds on resilience for any future type of event.Efforts along those lines are going to continue. No one expected the level of continued waves and vaccinehesitancy, which creates a lot of space for additional variants to develop. We are grappling with the currentpandemic and are not focusing on the future pandemics. Chairman Glaser stated that he appreciates all the

comments made and stated that validity exists on all sides. Further discussions must be had.Mr. Crabb commented that two other papers, one from RAND and one from the Committee on Capital

Markets Regulation, had been submitted for the committee’s consideration. Mr. Crabb asked the

membership to review those papers because the papers are independent review of what worked, what didnot work, what should be considered when developing solutions for the next pandemic. Chairman Glaser

thanked Mr. Crabb for his comment.

New Business and AdjournmentChairman Glaser asked if anyone had any new business for consideration. Hearing nothing, ChairmanGlaser adjourned the meeting and mentioned that the next meeting is December 2, 2021. Chairman Glaserthanked everyone for their time. The meeting concluded at 12:39 p.m.Dan Glaser, Chair