JULY 2021 

PANDEMIC

BUSINESS INTERRUPTION

INSURANCE
© Committee on Capital Markets Regulation 2021. All rights reserved. Limited extracts may be reproduced 

or translated provided the source is stated.
The Committee on Capital Markets Regulation (the “Committee”) is an independent 501(c)(3) research 

organization, financed by contributions from individuals, foundations, and corporations. The Committee’s 

membership includes thirty-nine leaders drawn from the finance, business, law, accounting, and academic 

communities. The Committee Co-Chairs are R. Glenn Hubbard, Dean Emeritus of Columbia Business 

School, and John L. Thornton, Former Chairman of the Brookings Institution. The Committee’s President is 

Hal S. Scott, Emeritus Nomura Professor of International Financial Systems at Harvard Law School and 

President of the Program on International Financial Systems. Founded in 2006, the Committee undertook its 

first major report at the request of the incoming U.S. Secretary of the Treasury, Henry M. Paulson. Over ten 

years later, the Committee’s research continues to provide policymakers with an empirical and non-partisan 

foundation for public policy. This report was prepared by the Committee’s staff.

Pandemic

Business Interruption

Insurance

Table of Contents

Executive Summary...................................................................................................................... 1

Part I: Background: Coverage of BII under Existing Policies................................................. 3

A. Policy Coverage and Litigation ....................................................................................... 3

B. Retroactive COVID-19 Coverage Mandates and Compensation Funds ......................... 6

Part II: Addressing Future Pandemic Risk................................................................................ 8

A. Legislative Proposal: Pandemic Risk Insurance Act ....................................................... 9

PRIA compared to TRIA ...................................................................................................... 10

Total Insurer Exposure.......................................................................................................... 11

Potential Issues with PRIA ................................................................................................... 11

B. Industry Proposal: Business Continuity Protection Program ....................................... 13

C. Chubb Proposal: Pandemic Business Interruption Program ........................................ 15

Small Businesses: Business Expense Insurance Program .................................................... 15

Large Businesses: Pandemic Re ........................................................................................... 16

Total Exposure ...................................................................................................................... 16

D. Comparison of Pandemic Insurance Proposals............................................................. 16

E. Insurance Proposals Compared to COVID-19 Legislation ........................................... 19

Conclusion ................................................................................................................................... 20
1

Executive Summary

This report by the Committee on Capital Markets Regulation (the “Committee”) assesses 

the role of business interruption insurance (“BII”) during the COVID-19 pandemic and evaluates 

proposals to reform BII so that U.S. businesses can insure against losses from future pandemics.

BII is a type of property insurance that offers businesses protection against revenue loss

and certain expenses resulting from events that cause direct physical loss or damage to insured 

property that prevents them from using that property.1 The Insurance Information Institute

estimates that 30-40% of small businesses carry BII,2 which translatesto approximately ten million 

small businesses in the U.S.

3

The COVID-19 pandemic and resulting business losses from closures and other disruptions 

have brought attention to whether and how BII should cover pandemic-related losses. These 

discussions have prompted government and the private-sector to explore forward-looking BII 

reforms to address business interruption risks arising from future pandemics. However, the 

correlation and magnitude of the risk of a future pandemic make BII for such events difficult to 

design.

In Part I of this report, we review the experience of BII during the COVID-19 pandemic. 

First, we examine the structure of BII policies and litigation between insurers and policyholders 

over whether existing BII policies cover losses arising from the pandemic and associated 

government-mandated shutdowns. We find that, because BII policies typically require physical 

damage or contain pandemic-related exclusions, insurers have mostly prevailed in arguing that 

current BII policies do not cover COVID-related losses. Next, we survey efforts at the state and 

federal level to require insurers to cover COVID-related losses retroactively. Due to the 

constitutional and economic obstacles to this approach, these proposals have not been 

implemented.

In Part II, we evaluate the three main proposals for the federal government to ensure that 

businesses have access to pandemic BII. The first proposal, the Pandemic Risk Insurance Act 

(“PRIA”), was introduced in Congress by Representative Carolyn Maloney (D-NY). Modeled 

after the Terrorism Risk Insurance Act (“TRIA”), PRIA would rely on participating insurers to 

offer pandemic coverage, and the government would cover a portion of insured losses over certain 

thresholds up to $750 billion. Unlike TRIA, participation in PRIA by insurers is optional. Given 

the enormity and unpredictability of pandemic-related losses, there are serious risks that too few 

insurers would participate in PRIA for it to be effective. The second proposal, the Business 

Continuity Protection Program (“BCPP”), was proposed by the insurance industry. Under the 

BCPP, which is modeled after the federal flood insurance program, the federal government would 

offer pandemic coverage directly to businesses and seek reinsurance from the capital markets.

Lastly, the Chubb insurance company has put forward a third option, the Pandemic Business 

Interruption Program (“PBIP”), which is similar to PRIA but with modifications that place more 

1 CTR. FOR INS. POL’Y & RSCH, NAT’L ASS’N INS. COMM’RS. [hereinafter “NAIC”], Business Interruption/Business 

Owner’s Policies (BOP), (Dec. 29, 2020), 

https://content.naic.org/cipr_topics/topic_business_interruptionbusinessowners_policies_bop.htm. 2 Suzanne Barlyn, U.S. insurers want taxpayers to back pandemic coverage for business, REUTERS, Apr. 29, 2020, 

https://www.reuters.com/article/health-coronavirus-insurance-pandemics/u-s-insurers-want-taxpayers-to-backpandemic-coverage-for-businesses-idUSL2N2CF270. 3 American Property and Casualty Insurance Association [hereinafter “APCIA”], Commercial Insurance and 

Business Interruption Coverage in COVID-19 (2020), https://www.apci.org/covid-19-resources/. 
2

limits on insurers’ aggregate exposure. The issue with the PBIP is whether the combination of 

insurer and government contributions cover a meaningful portion of possible pandemic losses. 

In Part II we compare the terms of each proposal, measure the government and insurers’ 

maximum possible exposure under each proposal and assess concerns regarding each program’s

design. We then compare these proposals with the government support programs that addressed 

the economic impact of COVID-19 on small businesses, including the Small Business 

Administration’s Paycheck Protection Program (the “PPP”) and the Federal Reserve’s Main 

Street Lending Program (the “MSLP”).

In the conclusion, we consider the key difficulties in designing a pandemic BII program. 

We conclude that the best course for policymakers may be to: (i) establish a modest BCPP program 

to be quickly triggered at the onset of a pandemic; and (ii) supply any further government support 

as necessary through enhanced versions of the PPP and MSLP.
3

Part I: Background: Coverage of BII under Existing Policies

In response to policyholders’ claims for coverage of losses arising from the COVID-19 

pandemic, insurers contend that existing BII policies do not cover pandemic risk.

4 Their arguments 

rest both on textual analysis of BII contract language and on a policy-based argument that 

“pandemics cannot be insured because they are uninsurable,” due to the difficulty of pricing such 

risk and the scale of potential losses.5 This position has led to considerable litigation, which is still 

playing out in courts.6

A. Policy Coverage and Litigation

BII policies typically cover losses from the suspension or reduction of operations caused 

by direct physical loss or physical damage to covered property that results from a covered peril.7

 

So far, insurers have mostly prevailed in litigation over whether shutdowns resulting from the 

COVID-19 pandemic constitute physical loss or damage and whether they fall under the covered 

perils of most BII policies.8 

Insurance companies have argued that a pandemic does not constitute physical loss or 

damage to commercial property, unlike from a fire or other physical event.9

 However, plaintiffs 

have countered, and most courts have agreed, that the common meaning of “physical loss” includes 

the “inability to utilize or possess something in the real, material, or bodily world” and the loss of 

“the full range of rights and advantages of using or accessing...property,” and thus includes losses 

from the COVID-19 pandemic.10 

4 See, e.g., id. (“Generally, business interruption losses must result from a risk (like a fire) that is covered in the 

purchased business insurance policy that causes actual damage to the building or its contents. This type of damage 

does not exist in the context of the COVID-19 pandemic.”). 5 Id. See also Insurance Information Institute [hereinafter III], Fact Sheet: Understanding Business Interruption 

Insurance and Pandemics, https://www.iii.org/sites/default/files/docs/pdf/business_interruption_101_041320_2.pdf; 

Russ Banham, This Insurance Would Have Helped in Coronavirus Crisis But Nobody Bought It, INS. J., Apr. 3, 

2020, https://www.insurancejournal.com/news/national/2020/04/03/563224.htm. 6 COVID COVERAGE LITIGATION TRACKER, https://cclt.law.upenn.edu/ (last visited Mar. 17, 2021). 7 Danielle B. Gatto & Joseph V. Cuomo, Analyzing Business Interruption Insurance Clauses – A Primer for New 

York Business Owners, FORCHELLI LAW, https://www.forchellilaw.com/announcements/analyzing-businessinterruption-insurance-clauses-a-primer-for-new-york-business-owners/ (last visited Mar. 17, 2021). See also Jill 

M. Bisco, Stephen G. Fier & David M. Pooser, Business Interruption Insurance and COVID-19: Coverage and 

Issues and Policy Implications, 39 J. INS. REG. 1, 8 (2020), https://content.naic.org/sites/default/files/inline-files/JIRZA-39-05-EL.pdf; ISO Business Income (and Extra Expense) (BIEE) Coverage Form (CP 00 30 10 12), 

http://pacificcoastes.com/assets/BusinessIncomeEE1.pdf. 8 Jef Feeley & Katherine Chiglinsky, Insurers Winning Most, But Not All, COVID-19 Business Interruption 

Lawsuits, INS. J., Nov. 30, 2020, https://www.insurancejournal.com/news/national/2020/11/30/592047.htm; Tyrone 

R. Childress, Edward M. Joyce & Jason B. Lissy, Jones Day, Policyholders Notch Victory in Fight for COVID-19-

Related Business Interruption Insurance Coverage (Oct. 2020), 

https://www.jonesday.com/en/insights/2020/10/policyholders-notch-victory-in-fight-for-covid19related-businessinterruption-insurance-coverage; Jim Sams, Plaintiffs Win One, Lose One in COVID-19 BI Legal Fight, INS. J., Oct. 

5, 2020, https://www.insurancejournal.com/magazines/mag-features/2020/10/05/585133.htm. 9 APCIA, Commercial Insurance and Business Interruption Coverage in COVID-19 (2020), 

https://www.apci.org/covid-19-resources/. 10 N. State Deli, LLC v. Cincinnati Ins. Co., 2020 WL 6281507 at *3 (Super. Ct. N.C., 2020). See also Studio 417, 

Inc. v. Cincinnati Ins. Co., 478 F. Supp. 3d 794, 798–803 (W.D. Mo. 2020) (holding plaintiffs’ adequately alleged 

“physical loss” of property from COVID-19 and closure orders). But see T&E Chi. v. Cincinnati Ins. Co., 2020 WL 

6801845 at *5 (N.D. Ill. 2020) (holding COVID-19 closure was not a physical “loss to” business property). 
4

BII policies either follow an “all risks” format, covering all causes of direct physical loss

except those that are specifically excluded,11 or they limit their coverage to the causes of damages 

enumerated in the policy.12 Enumerated risk policies may include a “communicable disease event” 

risk, but such coverage is rare.

13 On the other hand, many “all risks” policies contain exclusions 

for losses caused by viruses or bacteria.14 These exclusions are typically contained in a clause 

excluding damage caused by “bacteria,” alongside “fungus, wet or dry rot, or other pollutants” 

(“fungus or pollutant” exclusion) or a clause excluding damage caused by “virus, bacterium or 

other microorganism that induces or is capable of inducing physical distress, illness or disease” 

(“virus or bacteria” exclusion).15 So far, certain judges have been skeptical of the argument that 

the “fungus or pollutant” exclusion applies to pandemic-related events,16 whereas insurers have 

fared better in cases where the policy contained a “virus or bacteria” exclusion.17

Some “all risks” policies also have language that excludes risks related to “virus or 

bacteria” from coverage for losses arising when civil authorities prohibit access to business 

premises as a result of physical damage.18 Civil authority action is defined as an event where a 

covered cause of losses causes damage to property other than the insured business premises and a 

civil authority takes an action to prohibit access to the business premises because of the damage 

to the other property.19 Coverage typically applies only if (1) the civil authority prohibits access 

to the area immediately surrounding the damaged property because of the damage, and the covered 

business premises are within one mile of the damaged property and within the area to which the 

civil authority has prohibited access; and (2) the civil authority has prohibited access because of 

dangerous physical conditions resulting from the damage or continuation of the covered loss that 

caused/is causing the relevant damage.20 These policies are also typically time-limited, with 

coverage beginning only after a 72-hour waiting period and ending three or four consecutive weeks 

11 T&E Chi., 2020 WL 6801845 at *1; Studio 417, 378 F. Supp. 3d at 797; Jill M. Bisco, Stephen G. Fier & David 

M. Pooser, Business Interruption Insurance and COVID-19: Coverage and Issues and Policy Implications, 39 J.

INS. REG. 1, 8 (2020); Jane Massey Draper, 30 A.L.R.5th 170, §2(b) (Originally published in 1995). 12 Jill M. Bisco, Stephen G. Fier & David M. Pooser, Business Interruption Insurance and COVID-19: Coverage 

and Issues and Policy Implications, 39 J. INS. REG. 1, 8–9 (2020). See also Danielle B. Gatto & Joseph V. Cuomo, 

Analyzing Business Interruption Insurance Clauses – A Primer for New York Business Owners, FORCHELLI LAW, 

https://www.forchellilaw.com/announcements/analyzing-business-interruption-insurance-clauses-a-primer-for-newyork-business-owners/ (last visited Mar. 17, 2021). 13 See COVID COVERAGE LITIGATION TRACKER, https://cclt.law.upenn.edu/ (last visited Mar. 17, 2021). 14 See id. 15 Jill M. Bisco, Stephen G. Fier & David M. Pooser, Business Interruption Insurance and COVID-19: Coverage 

and Issues and Policy Implications, 39 J. INS. REG. 1, 9–10 (2020), https://content.naic.org/sites/default/files/inlinefiles/JIR-ZA-39-05-EL.pdf. 16 See, e.g., Urogynecology Specialist of Florida LLC v. Sentinel Insurance Company, Ltd., 2020 WL 5939172 at *4 

(M.D. Fla. 2020) (“Denying coverage for losses stemming from COVID-19, however, does not logically align with 

the grouping of the virus exclusion with other pollutants...”). But see Nahmad v. Hartford Cas. Ins. Co., 2020 WL 

6392841 at *4 (S.D. Fla. 2020) (holding plaintiffs’ claims excluded by similar “fungus or pollutant” language). 

17 See, e.g., Kahn v. Pa. Nat’l Mut. Cas. Ins. Co., 2021 WL 422607 at *3 (M.D. Pa. 2021) (policy stated “We will 

not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or 

is capable of inducing physical distress, illness or disease.”). 

18 Jill M. Bisco, Stephen G. Fier & David M. Pooser, Business Interruption Insurance and COVID-19: Coverage 

and Issues and Policy Implications, 39 J. INS. REG. 1, 10 (2020), https://content.naic.org/sites/default/files/inlinefiles/JIR-ZA-39-05-EL.pdf. 19 ISO Business Income (and Extra Expense) (BIEE) Coverage Form (CP 00 30 10 12), 

http://pacificcoastes.com/assets/BusinessIncomeEE1.pdf. 20 Id. Furthermore, civil authority coverage typically has a duration limited to 4 consecutive weeks.
5

after coverage began.21 Pandemic closure losses are unlikely to qualify for civil authority coverage, 

unless a court adopts a broad understanding of damaged property and views all property within a 

municipality or state adopting a closure mandate as the “damaged property” for purposes of the 

policy coverage.

The National Association of Insurance Commissioners (“NAIC”) reports that as of

November 2020, 210,454 property and casualty insurance claims had been filed in relation to the 

COVID-19 pandemic, at a value of over $1.3 billion.22 As of that date, 84% of claims had been 

closed without payment, 13% remained open, and 2% had been closed with payment.23 Total paid 

claims were for $420 million – a very small sum compared to total pandemic-related losses.

24

According to the Covid Coverage Litigation Tracker, run by University of Pennsylvania Law 

School Professor Baker, BII policyholders have filed approximately 1,500 cases in state and 

federal court in relation to disputes over BII coverage relating to COVID-19.

25 So far, results at 

the motion to dismiss phase have favored the insurance companies, which have won dismissals in 

90% of cases that have been decided in federal court and 51% of cases in state court.26

According to the American Property Casualty Insurance Association (“APCIA”), COVID19 closure losses for U.S. small businesses were between $255 billion and $431 billion per 

month.

27 This estimate translates to annual losses of $3.06-5.17 trillion for small businesses alone. 

Using the Insurance Information Institute’s estimate that 30-40% of small businesses carry BII,28

these losses could translate to insurance exposures of $76.5-172.4 billion per month.29 These 

losses are extremely large, especially when considering that U.S. home, auto, and business insurers

together have only $800 billion in policyholder surplus to cover all future losses,

30 and that 

commercial property insurance policies collect only $6 billion per month in premiums.

31

However, the total number of claims and cases filed, as well as the dollar value of total property 

21 See, e.g., Larry P. Schiffer, Aaron C. Garavaglia, Kelly Mihocik, COVID-19 and Waiting Periods Under Business 

Interruption Coverage, THE NATIONAL LAW REVIEW (March 23, 2020), 

https://www.natlawreview.com/article/covid-19-and-waiting-periods-under-business-interruption-coverage. 22 NAIC, Covid-19 Property & Casualty Insurance Business Interruption Data Call, Part 2: Claim and Loss 

Information (Nov. 2020), https://content.naic.org/sites/default/files/inline-files/COVID19%20BI%20Nat%27l%20Claims%20Aggregates_Nov.pdf. 23 Id. 24 Id. 25 Id. 26 Id. 27 This estimate appears to have made at the beginning of the pandemic, when losses were likely substantially higher 

than at other times during the year, as closure mandates eased and businesses adapted to operating in the new 

conditions. It would be useful to see how losses evolved over the past year of the pandemic to get a fuller 

understanding of the BII risks that actually arise from a pandemic. See APCIA, Commercial Insurance and Business 

Interruption Coverage in COVID-19 (2020), https://www.apci.org/covid-19-resources/. 28 Suzanne Barlyn, U.S. insurers want taxpayers to back pandemic coverage for business, REUTERS, Apr. 29, 2020, 

https://www.reuters.com/article/health-coronavirus-insurance-pandemics/u-s-insurers-want-taxpayers-to-backpandemic-coverage-for-businesses-idUSL2N2CF270. 29 This estimate assumes that losses would be evenly distributed between insured and non-insured businesses, i.e., 

the lower bound estimate was calculated by taking 30% of $255 billion. 30 APCIA, Commercial Insurance and Business Interruption Coverage in COVID-19 (2020), 

https://www.apci.org/covid-19-resources/. 31 Contessa Brewer, Insurers lobby for federal pandemic insurance program, CNBC, July 21, 2020, 

https://www.cnbc.com/2020/07/21/insurers-lobby-for-federal-pandemic-insurance-program.html. 
6

and casualty claims made in relation to the COVID-19 pandemic – $1.3 billion32 – is low. The 

small dollar value of claims filed suggests that few policyholders are sufficiently confident that 

their policies cover pandemic losses to file claims. 

B. Retroactive COVID-19 Coverage Mandates and Compensation Funds

In 2020, legislators in eleven states and Puerto Rico introduced bills to require insurers to 

cover some or all COVID-19 losses.33 Some of the bills took the approach of construing typical 

policy language to include pandemic risks,34 while others laid down a more direct mandate.35 Both 

approaches would trigger constitutional scrutiny if passed. The U.S. Supreme Court has held that 

the Contracts Clause of the U.S. Constitution prohibits states from passing laws that retroactively 

and substantially interfere with private contracts absent limited exceptions,

36 and the National 

Council of Insurance Legislators has argued that a legislative mandate for retroactive coverage 

would run afoul of this prohibition.37

A few bills were also introduced in Congress in 2020 that would have provided some BII 

coverage for past COVID-19 losses, either by mandating compensation to policyholders and 

subsequently reimbursing insurers, or by invalidating exclusions in existing policies as applied to 

losses arising from the pandemic.

38 Reimbursing insurers for payments would avoid the 

constitutional issue that invalidating exclusions would raise, but this would place the cost of 

32 NAIC, Covid-19 Property & Casualty Insurance Business Interruption Data Call, Part 2: Claim and Loss 

Information (Nov. 2020), https://content.naic.org/sites/default/files/inline-files/COVID19%20BI%20Nat%27l%20Claims%20Aggregates_Nov.pdf. 33 See tracking at Business Interruption Insurance 2021 Legislation, NAT’L CONF. STATE LEGISLATURES (Feb. 12, 

2021), https://www.ncsl.org/research/financial-services-and-commerce/business-interruption-insurance-2021-

legislation.aspx (last visited Mar. 18, 2021); Business Interruption Insurance 2020 Legislation, NAT’L CONF. STATE 

LEGISLATURES (Dec. 11, 2020), https://www.ncsl.org/research/financial-services-and-commerce/businessinterruption-insurance-2020-legislation.aspx; Business Interruption Legislation, WHOLESALE & SPECIALTY INS.

ASS’N (Feb. 9, 2021), https://www.wsia.org/wcm/Legislative_Advocacy_Compliance___PAC/COVID19/Business_Interruption_Legislation/wcm/Legislative_Advocacy___PAC/Business_Interruption_Legislation.aspx?

hkey=ac65ce8a-5295-409d-ba17-f97d14f954a0 (last visited Mar. 18, 2021). Some bills requiring insurers to provide 

coverage were accompanied by other legislation to create a fund to compensate insurers for some or all of their 

losses. See, e.g., A.B. 3844, 219th Leg., 2020-21 Reg. Sess. (N.J. 2020). 34 See, e.g., A.B. 3844, 219th Leg., 2020-21 Reg. Sess. (N.J. 2020); H.B. 858, 2020, H.R., Reg. Sess. (La. 2020); 

S.B. 1188, 2019-20 Gen. Assemb. 123d Sess. (S.C. 2020). 35 See, e.g., H.B. 589, 133d Gen. Assemb., 2019-2020 Reg. Sess. (Ohio 2020); A.B. AO1937, 2021–22 H.R., Reg. 

Sess. (N.Y. 2021), S.B. S04711, 2020-21 S., Reg. Sess. (N.Y. 2021). 36 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 400 (1983). See also General Motors 

Corp. v. Romein, 503 U.S. 181, 191 (1992)l Robert J. Kaler, Holland & Knight, Proposed COVID-19-Related 

Business Interruption and Property Loss Insurance Legislation (Apr. 24, 2020), 

https://www.hklaw.com/en/insights/publications/2020/04/proposed-covid19-related-business-interruption-andproperty. 37 Letter from Matt Lehman, Majority Leader, Indiana House of Representatives, NCOIL President & Tom 

Considine, Chief Executive Officer, NCOIL to Nydia M. Velazquez, Chair, House Committee on Small Business 

(Mar. 25, 2020), https://us.eversheds-sutherland.com/portalresource/TC-ML-letter-to-Congress-re-COVID-3-25-

2020.pdf. 38 Business Interruption Relief Act, H.R. 7412, 116th Cong. (2020); Business Interruption Insurance Coverage Act, 

H.R. 6494, 116th Cong. (2020). See Mark A. Packman, Proposed Legislation Regarding Business Interruption 

Insurance for COVID-19 Claims, NAT’L L. REV. (July 15, 2020), https://www.natlawreview.com/article/proposedlegislation-regarding-business-interruption-insurance-covid-19-claims; DIANE P. HORN & BAIRD WEBEL, CONG.

RSCH. SERV., IN11383, BUSINESS INTERRUPTION INSURANCE AND COVID-19: FEDERAL LEGISLATIVE INITIATIVES 2

(May 11, 2020), https://crsreports.congress.gov/product/pdf/IN/IN11383. See also Never Again Small Business 

Protection Act of 2020, H.R. 6497, 116th Cong. (2020) (providing prospective coverage only, by requiring insurers 

to offer coverage for government-ordered closures). 
7

coverage with the government. As of June 2021, neither Congress nor any state had passed any 

such legislation. 

There were also several proposals at both the state and federal levels to establish funds to 

directly compensate businesses and employees who suffered losses from the pandemic, not 

attached to any insurance coverage mandate.39 For instance, a consortium of trade associations 

proposed a federal compensation program for affected businesses, modeled loosely after the 

September 11 Victims Compensation Fund (“VCF”).

40 The National Council of Insurance 

Legislators (“NCOIL”), an organization primarily composed of state legislators serving on 

insurance and financial institutions committees also expressed support for this proposal.41 The 

proposals would have established a federally funded administrator that would be responsible for 

helping businesses affected by COVID-19 to retain and rehire employees, maintain employee 

benefits, and meet operating expense obligations.42 Neither Congress nor any state has passed any 

legislation modeled after these compensation proposals.

39 See, e.g., Letter from American Booksellers Association, American Hotel & Lodging Association (AHLA), 

American Land and Title Association (ALTA), American Property Casualty Insurance Association (APCIA), Asian 

American Hotel Owners Association (AAHOA), Certified Commercial Investment Member Institute (CCIM 

Institute), Coalition of Franchisee Associations (CFA), CRE Finance Council, The Council of Insurance Agents & 

Brokers (CIAB), Franchise Business Services (FBS), Independent Insurance Agents & Brokers of America 

(IIABA), Institute of Retail Estate Management (IREM), International Council of Shopping Centers (ICSC), 

International Foodservice Distributors Association (IFDA), International Franchise Association (IFA), Mortgage 

Bankers Association (MBA), NAIOP, the Commercial Real Estate Development Association, National Apartment 

Association (NAA), National Association of Convenience Stores (NACS), National Association of Mutual 

Insurance Companies (NAMIC), National Association of Professional Insurance Agents (PIA), National 

Association of REALTORS®, National Association of Theatre Owners (NATO), National Franchisee Association 

(NFA), National Multifamily Housing Council (NMHC), National Retail Federation (NRF), National Waste and 

Recycling Association (NWRA), The Payroll Group (TPG), The Petroleum Marketers Association of America 

(PMAA), Real Estate Board of New York (REBNY), The Real Estate Roundtable (RER), Retail Industry Leaders 

Association (RILA), Reinsurance Association of America (RAA), Society of Independent Gasoline Marketers of 

America (SIGMA), U.S. Travel Association & Wholesale & Specialty Insurance Association (WSIA) to President 

Donald J. Trump, Secretary of the Treasury Steven T. Mnuchin, U.S. Senate Majority Leader Mitch McConnell, 

U.S. Senate Democratic Leader Charles Schumer, U.S. House Speaker Nancy Pelosi & U.S. House Republican 

Leader Kevin McCarthy (Mar. 31, 2020), 

https://www.namic.org/pdf/20memberadvisory/200331_joint_trades_covid19_business_and_employees_fund_letter.pdf [hereinafter Business and Employees Fund Letter]; Rob Bordelon & 

Joseph Annotti, Texas Public Policy Foundation, The Workplace Recovery Act: A Public-Private Solution White 

Paper (April 2020), https://files.texaspolicy.com/uploads/2020/04/02184520/Bordelon-Annotti-WorkplaceRecovery-Act.pdf?utm_source=hs_email&utm_medium=email&_hsenc=p2ANqtz--

M4Pj7PdbxrqVhytv0XrSKpUpPuYl1n4uYnlTv5s7KYClnwcx7GST7je9eAc7vZUOA_SY3. See also Pat Hatler, 

Brandon Roman & Kelly Mihocik, A Survey of Recent Biz Interruption Insurance Legislation, LAW 360, June 9, 

2020, https://www.law360.com/articles/1278954/a-survey-of-recent-biz-interruption-insurance-legislation. 40 Business and Employees Fund Letter, https://www.namic.org/pdf/20memberadvisory/200331_joint_trades_covid19_business_and_employees_fund_letter.pdf; Pat Hatler, Brandon Roman & Kelly Mihocik, A Survey of Recent Biz 

Interruption Insurance Legislation, LAW 360, June 9, 2020, https://www.law360.com/articles/1278954/a-survey-ofrecent-biz-interruption-insurance-legislation; FIN. SERVS. COMM. MAJORITY STAFF, NOVEMBER 19, 2020, HCDI

SUBCOMMITTEE HEARING ENTITLED, “INSURING AGAINST A PANDEMIC: CHALLENGES AND SOLUTIONS FOR 

POLICYHOLDERS AND INSURERS” 5 (Nov. 16, 2020), https://financialservices.house.gov/uploadedfiles/hhrg-116-

ba04-20201119-sd002.pdf. 41 Letter from Matt Lehman, Majority Leader, Indiana House of Representatives, NCOIL President & Tom 

Considine, Chief Executive Officer, NCOIL to Nydia M. Velazquez, Chair, House Committee on Small Business 

(Mar. 25, 2020), https://us.eversheds-sutherland.com/portalresource/TC-ML-letter-to-Congress-re-COVID-3-25-

2020.pdf. 42 Business and Employees Fund Letter, https://www.namic.org/pdf/20memberadvisory/200331_joint_trades_covid19_business_and_employees_fund_letter.pdf. 
8

Part II: Addressing Future Pandemic Risk

Pandemics represent a substantial systemic risk that must be addressed on a market- and 

economy-wide basis, but the risk of a pandemic does not appear to meet the key characteristics of 

an insurable risk. For example, for a risk to be insurable, there must be a large number of separate 

and distinct exposure units, the chance of loss must be calculable, the amount of loss must be 

measurable in advance, the loss cannot be widespread and catastrophic, and premiums must be 

economically feasible.43 But pandemic losses are systemic, correlated and subject to millions of 

simultaneous claims. Pandemic losses also cannot be accurately modeled with respect to shifts in 

macroeconomic consumer demand and likely too expensive to provide affordable coverage given 

the size of losses and unknown frequency of future pandemics. In addition, because it is difficult 

to distinguish direct pandemic losses(that occur due to closure) from the general decline in revenue 

(that would occur anyways due to falling consumer demand), pandemic-related BII could force 

insurers to cover general recession-related losses in addition to direct losses from closures.

Without government support and/or effective BII, the economy would suffer substantial 

contraction in response to a pandemic, especially if the pandemic results in mandatory closure 

orders to prevent spread of the disease. Under the current private contract system for BII, 

individual businesses and the wider economy are generally exposed to this risk. In theory, a preestablished BII program may be preferable to the Paycheck Protection Program (“PPP”) or Main 

Street Lending programs (“MSLPs”) established to address COVID-19 costs to small and medium 

sized businesses. However, because future pandemics may follow very different paths from 

COVID-19 and, given the inability of private insurers to predict and cover enormous potential 

losses, it may be exceedingly difficult to design an effective program. This section discusses 

options to reform the BII system to address pandemic risk and then compares those options with 

the government’s actions in response to the COVID-19 crisis. 

Before considering the various proposals to reform the BII system, it is important to 

differentiate between voluntary and mandatory pandemic-related BII. If businesses rely on insurers 

to voluntarily offer pandemic-related BII, then insurers may limit coverage and/or charge 

prohibitive prices, so a significant portion of losses would go uncovered. Meanwhile, if the 

government mandates pandemic-related BII by requiring any insurer offering BII to offer coverage 

for pandemic-related losses, then insurers may stop offering BII entirely in order to avoid the 

unacceptably large losses (and corresponding solvency risk) involved. This could very well result 

in BII no longer being available for other historically insured perils such as fire, explosion, and 

windstorm. In addition, if the government requires businesses to buy pandemic-related BII in the 

marketplace, then coverage would surely come at high premiums. And if losses are too large for 

insurers to actually meet their coverage obligations, then businesses would suffer the worst of both 

worlds: no real coverage combined with the dead-weight loss of having paid useless premiums.

We now turn to a summary and evaluation of the major federal proposals to provide 

businesses with access to pandemic-related BII with government support.

43 Robert I Mehr and Emerson Cammack, Principles of Insurance, R.D. IRWIN, 34-37 (1976); George E. Rejda and 

Michael McNamara, Principles of Risk Management and Insurance, PEARSON, 13th Ed. (March 2016).
9

A. Legislative Proposal: Pandemic Risk Insurance Act

The Pandemic Risk Insurance Act (“PRIA”), H.R. 7011, introduced by Representative 

Carolyn Maloney (D-NY), is the leading legislative proposal to address future pandemic risks.44

Modelled on the Terrorism Risk Insurance Act (“TRIA”),

45 PRIA would create a government 

backstop for insurers to cover pandemic losses.46 Importantly, private insurers would voluntarily 

elect to participate in the program, but when they did, they would have to make coverage for 

pandemic losses available in all BII policies on the same material terms as coverage for events 

other than public health emergencies47 and businesses could then voluntarily choose to purchase 

pandemic coverage.

48 Thus, the terms of pandemic-related BII would vary by participating insurer.

Under PRIA, participating insurers must cover 100% of: (i) the first losses up to an 

aggregate of $250 million per public health emergency;49 plus (ii) each participating insurer’s 

deductible per calendar year (equal to 5% of the PRIA premiums the insurer collected in the prior 

year).

50 Once aggregate insured losses exceed $250 million plus the applicable insurer’s

deductible, then participating insurers must cover 5% of the next insured losses up to $750 billion, 

with the government covering the other 95% of losses up to $750 billion. Once aggregate systemwide insured losses exceed $750 billion in a given calendar year,

51 then federal government 

coverage would cease for that calendar year, and the Treasury would allocate additional insured 

losses pro rata among participating insurers until every insurer has covered up to its full deductible 

amount.52 Once every insurer has covered up to its full deductible amount for that calendar year, 

then neither the federal government nor insurers would cover additional losses in that calendar 

year.

53 

44 See H.R. 7011, Pandemic Risk Insurance Act of 2020, 116TH CONGRESS (2019-2020) (May 26, 2020), 

https://www.congress.gov/bill/116th-congress/house-bill/7011/text [“PRIA Bill”]. 45 FIN. SERVS. COMM. MAJORITY STAFF, NOVEMBER 19, 2020, HCDI SUBCOMMITTEE HEARING ENTITLED, “INSURING 

AGAINST A PANDEMIC: CHALLENGES AND SOLUTIONS FOR POLICYHOLDERS AND INSURERS” 4 (Nov. 16, 2020), 

https://financialservices.house.gov/uploadedfiles/hhrg-116-ba04-20201119-sd002.pdf. See also Terrorism Risk 

Insurance Act of 2002, 15 U.S.C. § 6701 note (2020) (Pub. L. No. 107-297, 116 Stat. 2232, renewed through 2027 

by Terrorism Risk Insurance Program Reauthorization Act of 2019, Pub. L. No. 116-94, 133 Stat. 2534, tit. 5, § 502 

(2019)) [hereinafter collectively referred to as TRIA. Because the TRIA included in the U.S.C. as a note, section 

references are to the public law rather than U.S.C.]. 46 See generally PRIA Bill, supra note 44. 47 PRIA Bill, supra note 44, at § 4(c)(2). 48 See generally PRIA Bill, supra note 44. 49 PRIA Bill, supra note 46, at § 4(e)(1)(B). 50 PRIA Bill, supra note 46, at § 3(10), § 4(e)(1)(A), 51 PRIA Bill, supra note 46, at § 4(e)(2)(A), 52 PRIA Bill, supra note 46, at § 3(10), § 4(e)(2)(B). 53 PRIA Bill, supra note 46, at §4(e)(2).
10

PRIA compared to TRIA

Table 1 below sets forth how the PRIA proposal compares to the existing TRIA program.

Table 1: Comparing TRIA and PRIA

Layer of Coverage TRIA PRIA

First losses before the 

Program Trigger

Insurers cover 100%

Up to $200 million in 

aggregate losses per terrorist 

act

Insurers cover 100%

Up to $250 million in 

aggregate losses per public 

health emergency

Insurer Deductible Each Insurer covers

additional losses equal to 

20% of the TRIA premiums it 

collected in the prior year

Estimated $45 billion

Each insurer covers

additional losses equal to 5% 

of the PRIA premiums it 

collected in the prior year

Unknown

Second losses after the 

applicable insurer has met 

its deductible

Government covers 80%, 

insurers cover 20%

Up to $100 billion aggregate 

losses

Government covers 95%, 

insurers cover 5%

Up to $750 billion aggregate 

losses

Above second losses 

maximum

No coverage. The Treasury allocates losses 

above $750 billion pro rata 

among participating insurers 

that have not yet met their 

full deductible. 

Until every participating 

insurer has met its deductible.

Then, no coverage.

Surcharge on Policyholders Government recovers any 

outlays by imposing a 

surcharge on subsequent 

TRIA policies

N/A

Two key differences between PRIA and TRIA are also noteworthy. First, in contrast to 

PRIA’s voluntary participation, all property and casualty insurers are required to participate in 

TRIA.54 Such mandatory participation has been acceptable to the insurance industry because of 

the TRIA limitations on their total losses. We also note that, under TRIA, the government must 

impose surcharges on TRIA policyholders in order to recover 140% of its coverage outlays over 

54 TRIA §§ 102(6), 103(a), (c); 30 C.F.R. § 50.3 (2021).
11

time (i.e., its 80% share of losses from $200 million to $100 billion).55 However, these surcharges 

progressively decline to zero once a terrorist attack has caused more than $37.5 billion in insured 

losses.56 PRIA does not have a similar provision, so the government would not directly pass its 

costs onto PRIA policyholders the way it does under TRIA.

Total Insurer Exposure

Under TRIA, private insurers’ total exposure is approximately $56.2 billion, which consists 

of: the first $200 million of losses, plus their deductible, which CCMR staff estimates at $45 

billion,57 plus 20% of the balance of insured losses up to $100 billion. In contrast, under PRIA, 

we estimate insurers’ aggregate exposure per calendar year to be approximately $37.75 billion plus

4.75% of the prior year’s premiums.

58 The $37.75 billion minimum includes the first $250 million 

of losses plus 5% of losses up to $750 billion, which is the minimum of insurer exposure before 

taking insurer deductibles into account. Because we do not know the relevant premiums, we cannot 

estimate insurers’ total annual exposure over $37.75 billion.

Crucially, whereas terrorist incidents are typically limited in time and scope, pandemics 

can affect entire economies for extended periods of time, and this will increase PRIA premiums.

59

While the 9/11 attacks caused the largest insured losses from a nonnatural disaster on record at 

$45 billion,60 APCIA’s estimate of small business pandemic losses of $251-431 billion per month

are far greater.61 Given the much-larger losses associated with pandemics compared to terrorism, 

PRIA premiums will likely be much larger than TRIA premiums, which means that insurer 

deductibles would increase aggregate insurer exposure well beyond $37.75 billion.

Potential Issues with PRIA

Insurers may avoid participating in PRIA to avoid large losses from a future pandemic.62

For instance, while PRIA’s deductibles and program cap apply per calendar year,

63 pandemics can 

span more than one calendar year, and multiple pandemics may occur in close proximity to one 

another, making aggregate losses from future pandemics (and the effective ceiling on insurer 

liability) hard to predict in advance. In addition, since insurer participation in PRIA is voluntary, 

55 TRIA § 103(e). 56 Id. 57 A Congressional Research Service Report estimated the deductible in 2017 to be $42 billion. See

CONGRESSIONAL RESEARCH SERVICE, Terrorism Risk Insurance: Overview and Issue Analysis for the 116th 

Congress, 4-5 (Dec. 27, 2019), https://fas.org/sgp/crs/terror/R45707.pdf. Using the Bureau of Labor Statistics’ 

estimate of annual core CPI inflation, CCMR staff estimates the inflation-adjusted deductible at $45 billion for 

2021. 

58 In order to supply this estimate, the Committee has assumed that: (i) every insurer meets its deductible before 

aggregate insured losses surpass $750 billion in the calendar year (in which case insurers are not exposed to losses 

above $750 billion); and (ii) aggregate insured losses are at least $750 billion in the relevant calendar year. The 

4.75% of the prior year’s premiums is the insurer deductible, adjusted downward in order to avoid double-counting 

the 5% of losses up to $750 billion already counted in the $37.75 billion. 59 Susanne Sclafane, Carrier Groups Ready Proposal for Federal Pandemic Loss Fund – Not PRIA, CARRIER 

MGMT., May 19, 2020, https://www.carriermanagement.com/news/2020/05/19/206826.htm. 60 CONGRESSIONAL RESEARCH SERVICE, Terrorism Risk Insurance: Overview and Issue Analysis for the 116th 

Congress, 1 (Dec. 27, 2019), https://fas.org/sgp/crs/terror/R45707.pdf. 61 APCIA, Commercial Insurance and Business Interruption Coverage in COVID-19 (2020), 

https://www.apci.org/covid-19-resources/. 62 See, e.g., Robert Armstrong, US insurance industry rift deepens over pandemic cover, FIN. TIMES, July 9, 2020, 

https://www.ft.com/content/4d7249eb-efa5-4b51-86ec-fe36a1467185. 63 See PRIA Bill, supra note 46, at § 3(10), § 4(e)(1)(A), § 4(e)(2)(A),
12

when fewer insurers choose to participate, each participating insurer must assume a larger portion 

of risk up to the $750 billion annual maximum, so unless a critical mass of insurers chooses to 

participate, the program may not have any participation at all. Thus, although the approximate cap 

on insurer liability may at first seem tolerable in relation to all property and casualty insurers’ 

aggregate net income ($66.2 billion in 2019) or surplus reserves ($866.2 billion in June 2020),64

the risk of in a multi-year pandemic with too few PRIA-participating insurers may deter any single 

insurer from participating in PRIA.

Moreover, BII insurers do not have enough specialized claims adjusters capable of 

simultaneously examining millions or potentially tens of millions of individual business 

interruption claims in a widespread pandemic – especially as the industry enters hurricane, flood, 

and wildfire season. BII insurers are normally able to expect that only a very small percentage of 

their BII customers are likely to be shut down at any one time from covered perils such as fires 

and windstorms – but a pandemic could impact practically all customers at the same time.

Indeed, insurance trade groups oppose the PRIA proposal.

65 One of industry’s core 

arguments against the PRIA is that insurance is an inappropriate mechanism to address pandemic 

risks.66 NAMIC, APCIA, and the Independent Insurance Agents of America (“Big ‘I’”) have

argued that the nature and scope of each pandemic cannot be readily determined in advance, so 

there is limited opportunity to diversify against the risk of a pandemic geographically or otherwise 

in advance67 and insurers therefore lack the capacity to manage such risks.68

However, executives for Chubb, Farmers, and Marsh have disagreed with the broader 

industry position that pandemic risks are uninsurable.69 They have argued that insurers do have 

the risk management capacity to handle these risks, and that they are not impossible to diversify.70 

One would assume that a basic risk management technique would be to charge higher premiums 

to businesses in the most exposed industries, including travel and leisure. This would then raise 

64 See NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, U.S. Property & Casualty Insurance Industry, 2019 

Full Year Results (2020), https://content.naic.org/sites/default/files/inline-files/YE2019%20Industry%20Report.pdf. 

See also NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, U.S. Property & Casualty Insurance Industry, 

2020 First Half Results (2021), https://content.naic.org/sites/default/files/inlinefiles/Property%20%26%20Casualty%20and%20Title%202020%20MidYear%20Industry%20Report%20%281%29.pdf. 65 National Association of Mutual Insurance Companies [hereinafter NAMIC], APCIA, Independent Insurance 

Agents of America [hereinafter “Big ‘I’”], Press Release, Insurance Trades Unveil Federal Pandemic Solution (May 

21, 2020), https://www.namic.org/news/releases/200521mr01; Robert Armstrong, US insurance industry rift 

deepens over pandemic cover, FIN. TIMES, July 9, 2020, https://www.ft.com/content/4d7249eb-efa5-4b51-86ecfe36a1467185. 66 See Susanne Sclafane, Carrier Groups Ready Proposal for Federal Pandemic Loss Fund – Not PRIA, CARRIER 

MGMT., May 19, 2020, https://www.carriermanagement.com/news/2020/05/19/206826.htm. 67 Robert Armstrong, US insurance industry rift deepens over pandemic cover, FIN. TIMES, July 9, 2020, 

https://www.ft.com/content/4d7249eb-efa5-4b51-86ec-fe36a1467185; NAMIC, APCIA, Big “I”, Press Release, 

Insurance Trades Unveil Federal Pandemic Solution (May 21, 2020), 

https://www.namic.org/news/releases/200521mr01. 68 Robert Armstrong, US insurance industry rift deepens over pandemic cover, FIN. TIMES, July 9, 2020, 

https://www.ft.com/content/4d7249eb-efa5-4b51-86ec-fe36a1467185; Robert Hartwig, APCIA, Uninsurability of 

Mass Market Business Continuity Risks from Viral Pandemics (2020), https://www.uscriskcenter.com/wpcontent/uploads/2020/05/Uninsurability-of-Pandemic-Risk-White-Paper-Hartwig-APCIA-FINAL-WORD.pdf. 69 Robert Armstrong, US insurance industry rift deepens over pandemic cover, FIN. TIMES, July 9, 2020, 

https://www.ft.com/content/4d7249eb-efa5-4b51-86ec-fe36a1467185. 70 Id.
13

the issue as to whether these industries would buy the high-priced insurance that they needed and 

whether industries with lower or no risk would decide to buy the insurance at all.

Ultimately, given the enormity of pandemic-related losses, the difficulty of predicting them 

in advance, and the disincentives for any single insurer to participate in PRIA, there is a serious 

risk that insurers would not participate in PRIA due to the unacceptably large risks involved. 

B. Industry Proposal: Business Continuity Protection Program

Insurance industry trade groups have proposed an alternative to PRIA that would be similar 

to federal flood insurance.

71 Under this proposal, the U.S. Department of Treasury would use 

federal funds to establish a Business Continuity Protection Program (the “BCPP”), which would 

sell revenue replacement assistance to any business that wanted it.72 Nonprofits would also be 

eligible for coverage.73 The assistance would cover up to 80% of its policyholders’ payroll and 

operating expenses for up to three months during a federally-declared viral emergency.

74 Payouts 

would be triggered automatically following the president’s declaration of a viral emergency.75

Payouts would be limited to those policyholders who had purchased protection at least 90 days 

before the declaration of the viral emergency.

76 Businesses receiving payments would be required 

to use the funds to pay necessary payroll and operating expenses and to follow applicable federal 

pandemic guidance.77

The proposal does not specify the premiums businesses would pay for BCPP coverage,

78

but this represents an important tradeoff in the program. With higher premiums, fewer businesses 

will purchase coverage; and with lower premiums, the government itself will be exposed to more 

net losses over the life of the program. 

Except for those insurers that voluntarily offer to sell excess coverage themselves, the 

BCPP proposal takes pandemic risk entirely outside of the insurance industry, which may be 

appropriate because of the uninsurable nature of pandemic risks, but it carries a potentially high 

price tag for the government. The proposal does contemplate that the U.S. Treasury might purchase 

reinsurance from the private market to protect taxpayers,79 but this would raise similar questions 

about whether reinsurers would undertake this risk any more than insurers themselves. Licensed 

insurance agents and brokers would be the authorized distribution network to market and sell the 

71 Susanne Sclafane, Carrier Groups Ready Proposal for Federal Pandemic Loss Fund – Not PRIA, CARRIER 

MGMT., May 19, 2020, https://www.carriermanagement.com/news/2020/05/19/206826.htm. 72 APCIA, Insurance Trades Unveil Federal Pandemic Solution (May 21, 2020), https://www.apci.org/media/newsreleases/release/60933/; APCIA, NAMIC, INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA, Business 

Continuity Protection Program (updated Sept. 2020), https://home.treasury.gov/system/files/311/BCPP-Overview9-20.pdf. See also APCIA and NAMIC, The Business Continuity Protection Program: Building on Experience to 

Develop an Affordable and Effective Federal Program for Future Pandemic Business Relief (Dec. 8, 2020), 

https://content.naic.org/sites/default/files/national_meeting/Don%20Griffin%20APCIA%20Presentation%20on%20

BCPP%20120820.pdf. 73 Id. 74 Id. 75 Termed “viral emergency” in proposal. See id. 76 Id. 77 Id. 78 See id. 79 Id.
14

BCPP’s revenue replacement assistance.

80 The proposal also contemplates that the BCPP would 

work with pandemic risk mitigation experts to develop guidelines and safety standards that would 

be provided to businesses that purchased coverage.81

The BCPP would create a new type of presidential declaration to trigger payment.82 First, 

individual state governors would request a viral emergency declaration from the federal 

government.

83 Then, if the U.S. President declared a viral emergency, the BCPP would disburse 

payment automatically to affected businesses for the portion of their expenses located in the 

emergency zone (as allocated in the application form).

84 Given the magnitude of expenditures this 

declaration would trigger, the contours of this presidential power would be appropriately cabined 

by parameters in the authorizing legislation.

85 Indeed, using APCIA’s estimate of small business 

closure losses between $255 billion and $431 billion per month from the beginning of the COVID19 pandemic,86 the government’s total exposure for 90 days of coverage under the BCPP could be 

between $612 billion and $1.04 trillion.87

It is difficult to assess how much demand there would be for coverage under the BCPP 

without specificity as to the premiums to participate in the program. An additional point of concern 

relating to the BCPP proposal is whether the three-month coverage period would be sufficient. As 

demonstrated by COVID-19, there is risk that closures and other damages arising from the 

pandemic may continue beyond that period. 

After releasing their initial BCPP proposal, insurance industry trade groups later updated 

it to provide for excess coverage beyond the base program.88 Under the “BCPP Plus” approach, 

businesses that purchase base BCPP coverage would be eligible to purchase excess coverage from 

insurers, and the federal government would backstop 90% of these covered losses, with insurers 

covering the remaining 10%.89 Because insurers would not be required to offer excess coverage, 

businesses would not be required to purchase it, and premiums are unspecified,

90 we are unable to 

estimate the ultimate effect of excess coverage on the scope and cost of the base BCPP proposal.

80 APCIA, NAMIC, INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA, Business Continuity Protection 

Program (updated Sept. 2020), https://home.treasury.gov/system/files/311/BCPP-Overview-9-20.pdf. 81 Id. 82 Id. at 4. 83 Id. at 4. 84 Id. at 4. 85 Id. at 4. 86 This estimate appears to have made at the beginning of the pandemic, when losses were likely substantially higher 

than at other times during the year, as closure mandates have eased and businesses have adapted to operating in the 

new conditions. It would be useful to see how losses evolved over the past year of the pandemic to get a fuller 

understanding of the BII risks that actually arise from a pandemic. See APCIA, Commercial Insurance and Business 

Interruption Coverage in COVID-19 (2020), https://www.apci.org/covid-19-resources/. 87 This calculation assumes full participation to assess the government’s maximum potential liability. 88 APCIA, NAMIC, INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA, Business Continuity Protection 

Program, 5 (updated Sept. 2020), https://home.treasury.gov/system/files/311/BCPP-Overview-9-20.pdf. 89 Id. at 5. 90 Id. at 5.
15

C. Chubb Proposal: Pandemic Business Interruption Program

Chubb, with support from Marsh and Farmers, has argued that the insurance industry does

have the capacity to cover some pandemic risks and has offered its own public-private partnership 

model to do so. The Pandemic Business Interruption Program (“PBIP”), has two components.91 

First, the Business Expense Insurance Program (“BIP”), would establish a model similar to the 

PRIA to handle small business losses, but with a lower level of exposure for private insurers. The 

second component would establish a government-run reinsurance program, the Pandemic Re, for 

medium and large businesses (those with over 500 employees). Chubb proposes that PBIP 

coverage would be triggered by the U.S. Centers for Disease Control and Prevention (“CDC”) 

medical criteria, the declaration of an emergency by the Department of Health and Human Services

or the president, or the implementation of a federal, state, or local lockdown.92 

Small Businesses: Business Expense Insurance Program

Under the BIP, all property and casualty insurers that offer BII policies would be required 

to participate. As previously observed, if the government compels BII insurers to offer pandemicrelated coverage, then insurers may stop offering BII entirely in order to limit their exposure.

Purchase of coverage would remain voluntary for businesses.

Under the program, participating businesses would be entitled to receive a pre-determined 

payment based on their payroll, following a government declaration of a pandemic and ensuing 

lockdown.93 Chubb proposes that private insurers would cover 6-12% of the first losses of covered 

businesses (the ratio would rise from 6% in year one of the program to 12% in year twenty), up to 

a maximum determined by the government, while the government would cover the remainder of 

first losses. After this unspecified maximum was reached, government would cover all additional 

losses up to a pre-determined maximum, with no industry participation, unlike PRIA, where 

second layer losses are shared. After the maximum of government coverage is reached, there would 

be no private or government coverage.

94 Importantly, there is no additional cost to insurers based 

on the premiums they receive.

Chubb envisions that the total coverage amount of the program could float at the 

government’s discretion, but suggests starting with $250 billion in first layer losses and $500 

billion in second layer losses, therefore providing a $750 billion total program limit.

95 Although 

the proposal does not specify whether these total coverage limits reset annually (like PRIA) or per 

pandemic, they appear to apply per pandemic.96 Using these numbers, private industry’s maximum 

exposure under the BIP would rise from $15 billion in year one (6% of $250 billion) to $30 billion

in year twenty (12% of $250 billion). This $30 billion maximum is notably less than the estimated 

$37.75 billion insurer exposure under PRIA (before adjusting upward for insurer deductibles based 

91 CHUBB, Pandemic Business Interruption Program (July 8, 2020), https://www.chubb.com/content/dam/chubbsites/chubb-com/us-en/about-chubb/pandemic-business-interruption-program/documents/pdf/pandemic-businessinterruption-program.pdf. 92 Id. at 6 93 Id. Chubb envisions a 14-day waiting period for payments and a three-month multiple of payroll expenses to 

determine eligible payments.

94 Id. 95 Id. 96 See id. (referring to a “program limit” rather than an annual limit).
16

on premiums). And this coverage would only be for businesses with fewer than 500 employees.

There would be no coverage under BIP for larger businesses. 

The Chubb proposal further provides that any businesses that decline coverage would be 

required to acknowledge that their pandemic-related losses would not be covered and that they 

would not be eligible for any other federal programs rolled out to minimize the impact of the 

pandemic, like PPP or the MSLPs.

97 Chubb argues that this opt-out system will encourage 

participation.98 This observation is undoubtedly true, but does it make sense to provide small 

business with such a Hobbesian choice? Moreover, faced with political pressure to provide strong 

support to the economy as a whole, it is unclear whether governments will actually exclude optingout businesses from other support programs. Chubb also contends that the premiums would be 

affordable, but Chubb does not explain why or estimate what the premiums would be. 

Large Businesses: Pandemic Re

The Pandemic Re component of the PBIP proposal would establish a separate program for 

medium and large businesses using a government-run reinsurance mechanism.99 Businesses with 

more than 500 employees would be eligible to participate in the program on a voluntary basis, and 

insurer participation would also be voluntary. The maximum payout on these policies would be

$50 million per policy holder.

100 Chubb proposes to have a total program capacity of $400 billion, 

with private insurers’ maximum share of coverage increasing from $15 billion in year one to $30 

billion in year ten.

101 The balance of covered losses would be covered by Pandemic Re, a newly 

established government reinsurance entity. Thus, the industry’s maximum exposure under the 

Pandemic Re would be $30 billion (in year ten) of the total $400 billion in coverage.

Total Exposure

Without taking premiums into account (which would in this case reduce insurers exposure) 

and using Chubb’s suggested numbers for the layers of coverage, the government’s total share of 

disbursements under the PBIP for both the basic and reinsurance programs would be around $1.1 

trillion, which consists of: (i) $720 to 735 billion from the BIP (88-94% of the first $250 billion of 

losses, plus 100% of $500 billion of additional losses), plus (ii) $370 to 385 billion from the 

Pandemic Re (92-96% of $400 billion in losses). Meanwhile, insurers would bear a maximum of 

$60 billion in losses, which consists of $30 billion each for coverage under the BIP and Pandemic 

Re. The revenue received from premiums would substantially reduce the insurers’ exposure.

D. Comparison of Pandemic Insurance Proposals 

Table 2 below compares the key terms of PRIA, BCPP, and PBIP. As to PBIP, because 

insurers’ exposure rises progressively over twenty years after adoption, we have supplied the 

government and insurers’ exposure in the first and twentieth years that PBIP would be in effect. 

Moreover, because PBIP includes one program for small businesses (where insurer participation 

is mandatory) and another for large businesses (where insurer participation is voluntary), we have 

supplied two exposure estimates that include and exclude the latter voluntary program.

97 Id. 98 Id. 99 Id. at 4. 100 Id. 101 Id.
17

Table 2: Comparison between Insurance Proposals

Metric PRIA BCPP PBIP

Modelled on TRIA Terrorism Insurance FEMA Flood Insurance TRIA Terrorism Insurance

Structure Operated by Insurers,

Backstopped by 

Government

Operated within the U.S. 

Treasury Department.

Operated by Insurers,

Backstopped by Government

Insurer 

Participation

Voluntary, except if an 

insurer participates it must 

participate for all covered 

lines.

None, except to provide 

administrative support and 

as voluntary reinsurers and 

excess coverage providers.

Brokers and agents to 

provide sales and services 

support.

Mandatory for insurers that 

offer BII

Business 

Participation

Voluntary Voluntary. Businesses 

declining protection must 

sign acknowledge they will 

be ineligible for BCPP 

benefits.

Businesses that opt out are 

not eligible for federal 

program benefits

Program Period

(for the purposes 

of loss coverage 

limits)

Per Calendar Year Per Public Health 

Emergency

Unspecified, but appears to 

be per pandemic event

Coverage 

Trigger

Determined by insurerpolicyholder contract, 

predicated on declared 

public health emergency for 

a pandemic.

Presidential declaration 

following finding of public 

health emergency

Government declares a 

pandemic or lockdowns take 

effect. For small businesses, 

14 day waiting period after 

qualifying event.

Covered Losses Determined by insurerpolicyholder contract. 

Includes event cancellation 

insurance policies.

Payroll and operating 

expenses. Event 

cancellation coverage 

authorized to be designed 

within base and excess 

coverage programs.

Payroll plus operating 

expenses for certain classes

Loss Coverage 

Formula

Tranche One: First losses 

up to $250mn:

Insurers cover 100%

Tranche Two: For each 

insurer, next losses up to 

5% of last year’s PRIA 

premiums:

Insurers cover 100%

Tranche Three: For insurers 

that have met their 

Tranche One: First losses 

up to three months:

Government covers 80%

Policyholder bears 20%

Excess coverage allowed to 

be purchased by larger 

businesses.

Tranche Two: 

Next losses after three 

months:

No coverage

Policyholder bears 100%

Note: Under “BCPP Plus,” 

if insurers voluntarily sell 

excess coverage, the 

Tranche One: First losses up 

to $250bn aggregate total:

Insurers cover 6% in year 

one rising to 12% in year 

twenty.

Government covers 94% in 

year one falling to 88% in 

year twenty.

Tranche Two: Next losses up 

to $750bn aggregate total:

Insurers cover 0%

Government covers 100%

Tranche Three: Losses after 

$750bn aggregate total:

No coverage
18

Metric PRIA BCPP PBIP

deductible, next losses up to 

$750bn in aggregate:

Insurers cover 5%

Government covers 95%

Tranche Four: Losses after 

$750bn aggregate total:

Reallocated among insurers 

until each has met its 

deductible, then 

policyholder bears 100%

government would 

backstop 90% of covered 

losses, and insurers would 

cover the other 10% of 

covered losses

Policyholder bears 100%

Businesses with 

>500 employees

Eligible for insurance

alongside small businesses

Eligible for coverage 

alongside small businesses, 

and excess coverage would 

be available under “BCPP 

Plus”

Ineligible, but there is a 

separate “Pandemic Re” 

program for large businesses

where insurer participation is 

voluntary

Insurance 

Industry: 

Estimated

Exposure

$37.75bn plus 4.75% of last 

year’s PRIA premiums102

Offset by premiums 

collected.

None, except for those 

insurers voluntarily 

offering excess coverage or 

acting as voluntary 

reinsurers 

Excluding Pandemic Re: 

Rises from $15bn in year one 

to $30bn in year twenty

Including Pandemic Re: 

Rises from $30bn in year one 

to $60bn in year twenty

Offset by premiums 

collected.

Government:

Estimated 

Exposure

$712.25bn minus 4.75% of 

last year’s PRIA premiums

Government: between 

$612bn and $1,004bn, plus 

90% of excess coverage 

under “BCPP plus”

Excluding Pandemic Re: 

Government: Falls from 

$735bn in year one to 

$720bn in year twenty

Including Pandemic Re: 

Government: Falls from 

$1,120bn in year one to 

$1,090 in year twenty

102 Consistent with the discussion in Part II.A, these figures assume that: (i) first, every insurer meets its deductible 

before aggregate insured losses surpass $750 billion; and (ii) second, aggregate insured losses do in fact surpass 

$750 billion in the relevant calendar year.
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E. Insurance Proposals Compared to COVID-19 Legislation

The PRIA, BCPP, and PBIP all have substantial aggregate price tags for the government 

and insurers roughly $612 billion to $1.112 trillion.

103 These substantial costs are approximately 

in line with Congress’s spending on small business relief under its pandemic relief legislation. For 

example, the most comparable portion of the pandemic relief bills to pandemic BII is the PPP, 

originally introduced in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act,104

and expanded in subsequent pandemic relief legislation.

105 The PPP funded low-interest, 

forgivable loans to small businesses (with under 500 employees) to cover payroll and other

specified expenses,

106 and had disbursed a total of $762 billion in funds as of April 18, 2021.107 

In addition, at its closing, the Fed’s Main Street Program had disbursed $16.5 billion in loans to 

businesses with less than 15,000 employees.108 Many, including Hal Scott and Glenn Hubbard, 

have argued that that even the COVID-19 relief packages were too small, as well as poorly 

designed.109 A more comprehensive response, aimed at avoiding devastation of small businesses,

could cost over $1 trillion. 

These comparable figures raise an important policy question: is it more effective to cover 

pandemic losses through BII or through the PPP and MSLPs? In theory, a preestablished program 

like pandemic BII may be rolled out more quickly and efficiently than ad hoc spending, because 

BII could offer prompt disbursements to small businesses, and thereby encourage fast pandemic 

mitigation measures early on, and thereby (potentially) avoid the extended economic disruption 

associated with a slow pandemic response. However, Congress enacted (and the executive branch 

implemented) the PPP quite swiftly, so the marginal gains from a preestablished program may be 

modest. In addition, even if the preestablished program were affordable, it would be difficult to 

design BII relief in advance, because different pandemics may follow quite different trajectories.

Thus, the unpredictable nature, frequency, and duration of pandemics are major obstacles to 

designing thoughtful and effective automatic relief.

Given these limitations, any pandemic response must strike a balance between speed, 

efficiency, and flexibility. To do so, the optimal approach may be to combine modest automatic 

relief with a larger discretionary package tailored to the specific pandemic at hand. First, at the 

onset of a pandemic, a short-term and affordable program modelled on BCPP could extend full 

government coverage for pandemic-related business interruption losses for a limited period of 

103 This analysis considers only the cost of maximum potential government outlays and does not incorporate analysis 

of premiums collected, although that would potentially offset some or all the costs in a crisis situation. None of the 

proposals have provided sufficient information on premium pricing to make premium analysis meaningful. 

104 Pub. L. No. 116-136 (2020). 105 See ROBERT JAY DILGER, BRUCE R. LINDSAY & SEAN LOWRY, CONG. RSCH. SERV., R46284, COVID-19 RELIEF 

ASSISTANCE TO SMALL BUSINESSES: ISSUES AND POLICY OPTIONS (Mar. 31, 2021). 106 Id. 107 Small Bus. Admin., Paycheck Protection Program (PPP) Report: Approvals through 4/18/2021 (Apr. 2021), 

https://www.sba.gov/sites/default/files/2021-04/PPP_Report_Public_210418-508.pdf. 108 Fed. Reserve Bd., Periodic Report: Update on Outstanding Lending Facilities Authorized by the Board under 

Section 13(3) of the Federal Reserve Act 8 (January 9, 2021), 

https://www.federalreserve.gov/publications/files/pdcf-mmlf-cpff-pmccf-smccf-talf-mlf-ppplf-msnlf-mself-msplfnonlf-noelf-01-11-21.pdf#page=7; Fed. Reserve Bd., For-Profit FAQs, 26 (Final Archived Version) (Dec. 29, 2020), 

https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm. 109 See Hal Scott, Here’s how the Fed can do more to support small businesses, FIN. TIMES, Jan. 11, 2021, 

https://www.ft.com/content/0d0b0f48-df3c-4b2f-97b8-d2da0415d8d6; Glenn Hubbard & Hal Scott, Main Street 

Needs More Fed Help, WALL ST. J., Apr. 16, 2020, https://www.wsj.com/articles/main-street-needs-more-fed-help11587055459. 
20

time. Second, Congress could use this window of opportunity to design further relief tailored to 

the size, scope, and duration of the disruption. By quickly and efficiently disbursing automatic 

relief while preserving future policy flexibility, this reduces the enormous pressure for Congress 

to act as quickly as possible, and it thereby creates a longer runway to consider and debate a 

thoughtful pandemic relief package.

Conclusion

Ultimately, it is extremely difficult to predict the dimensions of future pandemic risk, and 

as a result, it is equally difficult to design a pandemic BII program that adequately addresses that 

risk. Although PRIA attempts to establish a strong public private partnership, it may be 

simultaneously too big and too small to be effective. On the one hand, future pandemic losses may 

quickly outstrip PRIA’s $750 billion cap, leaving businesses unprotected beyond that point. On 

the other, the uncertain duration and frequency of pandemics, combined with the enormity and 

unpredictability of pandemic-related losses, threaten to deter insurers from participating in the 

program at all. At the other end of the spectrum, the PBIP offers far less participation from insurers, 

so the government bears the vast majority of risk. If insurer participation is trivial in relation to 

aggregate losses, then a pre-established pandemic program may add little to the government 

response to a future pandemic. 

In light of these considerations, the most effective pandemic insurance scheme may be to: 

(i) establish a modest BCPP program that offers immediate relief at the onset of a pandemic; and 

(ii) supply any further government support as necessary through a more streamlined version of the

PPP and a more generous version of the MSLP employed in 2020. Given this structure, any BCPPadjacent program should be large enough to afford Congress sufficient time to assemble a 

thoughtful package tailored to the specific pandemic at hand.


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