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Insurance Solutions for Pandemics

Before the Federal Advisory Committee on Insurance 

September 29, 2020

L. Charles Landgraf

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved.
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COVID-19 Exposed a Significant Protection Gap

• The current pandemic has shown that there is a significant protection gap for so-called non- damage business interruption insurance (NDBI). Commercial policyholders are now grappling 

with this “protection gap.”

• In addition, pandemic risk results in accumulation potential across several lines of insurance 

business, for example, event cancellation, credit, travel, and liability, not to mention life and 

health.

• The asset side of insurers’ balance sheets can also be affected by the adverse market 

conditions caused by the economic impact of the response to a pandemic (correlation risk). 

• Since insurance depends upon pooling and diversification, it is evident that insurance for 

pandemic risk will not be provided solely by private commercial insurers and reinsurers, at 

least not until the future risk is better understood.

• But, inability of businesses to insure NDBI and other risks has significant wider economic and social consequences such as businesses and individuals being unable to obtain loans and 

mortgages. This may well be an important second round effect of the COVID-19 crisis.

• Public-private solutions should be found.

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Principles for Public-Private Pandemic Insurance Solution

• Risk Assessment – to assess NDBI risks of pandemic, following are necessary:

o Access to data, both

‒ On the pandemic itself (e.g., type of virus, contagion development over time, etc.)

‒ Lockdown. In this era of “Big Data” much needs to be studied about where B/I actually occurred and why. Two sources of data:

 Government sources

 Private –financial institutions, etc.

o Risk Modelling – current Cat Models need to be adapted -- ASAP

• Risk Prevention

o Public prevention + private measures 

o Reflect prevention measures in NDBI insurance premiums and policy conditions

• Simple Transparent NDBI Coverage (Parametric)

• Support for Other Lines of Business Critical to the Economy

• Risk Transfer – “Put All Your Troops In” 

o Mandatory participation (in some form) by direct insurers

o Incentive for customer take-up 

o Pooling

o Develop reinsurance and capital market solutions for diversification

o Government back-stop (probably stop-loss as well as quota share) is essential
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Early Proposals for Public-Private Solution 

• PRIA (H.R.7411) – Adapting TRIA backstop to pandemic

• APCIA/NAMIC/IIABA – BCPP Plus – thoughtful development of NDBI parametric 

product 

• Chubb – Explicit role for private insurers as underwriters/risk takers/claims adjusters 

• Zurich – Building on the Federal Crop Insurance model, but again explicit role for 

private insurers 

• Business Continuity Coalition (Commercial Policyholders) – Incorporating elements of 

all the other proposals 
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Business Continuity Coalition (BCC)

• A broad-based (and still growing) coalition across industry lines, dedicated to working with

insurers and policymakers to develop a workable solution.

• Members include

o National Retail Federation

o International Council of Shopping Centers

o The Real Estate Roundtable

o Nareit

o Commercial Real Estate Finance Council

o Media industry, including Fox, Viacom/CBS, and IFTA

• BCC seeks not only widespread availability and affordability of NDBI coverage but also

restoration and expansion of coverage for the pandemic peril in other lines including, event

cancellation, movie/TV cast insurance, and other impacted lines.
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Systemic Risks May Need to Be Addressed More Broadly

• The European Insurance and Occupational Pension Authority (EIOPA) issued a

thoughtful Staff Paper on “Shared Resilience Solutions for Pandemics” (July 2020)

which, among other things, asks whether a multi-peril approach, coverings losses

from pandemic, cyber, climate change, and terrorism could offer better diversification

effects, ultimately improving society’s risk-bearing capacity and effectiveness.

• Similarly, Lloyd’s of London, as part of its “Global Recovery and Resilience” Paper

proposed frameworks for three potential structures for systemic risk, including Black

Swan Re, which would address these same systemic risks.

• Creating such a public/private backstop that supports systemic risks more broadly

could take advantage of the insurance industry’s expertise in risk mitigation and loss

adjustment while helping to avoid the reputational issues arise when the customer

base discovers too late the lack of coverage.

• This should not delay pandemic solution, but build off it.
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QUESTIONS?

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