Insurers Support Federal Backstop for Future Pandemics; Plaintiffs Seek Help for Current Outbreak

May 22, 2020

Key segments of the property/casualty insurance industry, which is facing mounting claims for business interruption losses from the pandemic, have thrown their lobbying weight behind a proposed federal program to replace revenues lost by businesses shut down during pandemics like COVID-19.

The federal program, called the Business Continuity Protection Program, or BCPP, would allow businesses to purchase revenue replacement coverage for up to 80 percent of payroll and other expenses. Businesses would purchase the federal revenue replacement assistance through state-regulated insurance entities that participate with BCPP on a voluntary basis, but the aid would come from the Federal Emergency Management Agency (FEMA), which would run the program.

The program is another entry in the growing number of proposals targeted at bringing relief to businesses suffering losses that insurers say are in most cases not covered by business interruption policies.

Two insurance carrier groups — the National Association of Mutual Insurance Companies and the American Property Casualty Insurance Association— along with the largest agents group, the Independent Insurance Agents & Brokers of America, announced their outline of the BCPP on Thursday.

BIG Proposal

Other industry interests, including the American Academy of Actuaries and broker Marsh, have supported a federal reinsurance backstop, modeled after the Terrorism Risk Insurance Act. Two discussion drafts of the so-called Pandemic Risk Insurance Act have been circulated on Capitol Hill in recent weeks.

There is at least one other proposal as well. During a Congressional hearing yesterday before a subcommittee of the House Small Business Committee, a lawyer for a coalition of restaurant, hospitality and other businesses with business interruption claims against insurers, the Business Interruption Group, proposed a compromise he hoped would speed payments to businesses and eliminate the need for some of the litigation.

Louisiana-based Attorney John W. Houghtaling, II, of the firm Gauthier Murphy & Houghtaling, described his opt-in plan — the BIG Insurance Relief Act —as one in which insurers would voluntarily agree to pay any claims on business interruption policies where there is no virus exclusion and then they could apply to be reimbursed by the federal government. As for all other business interruption claims, insurers would be free to pay or litigate with no federal government payback for whatever the outcome is.

Houghtaling explains on BIG’s website that his clients believe coverage is owed immediately on any business interruption policy that does not include a clear virus exclusion. “We are willing to support federal subsidies for insurers who cooperate with us, but the window for a solution is closing fast,” the website says.

At the virtual subcommittee hearing, Houghtaling stressed that his clients are not opposed to and actually agree with the insurance industry that lawmakers should not force a rewriting of contracts to cover business interruption retroactively as has been suggested in some states and that they prefer to avoid class action lawsuits. “We need a big compromise,” he said at the hearing.

“We are not against carriers, we need insurance to work. Some carriers are making frivolous denials, others may have good faith disagreements about coverage. BIG is advancing federal legislation in a public/private compromise with insurers for the funding of all policies,” he says on the website.


Thursday’s House hearing gave the insurance industry another opportunity to push back against moves to have insurers pay business interruption losses even where policies exclude such coverage involving a virus.

Insurance Information Institute CEO Sean Kevelighan told lawmakers that “any efforts to rewrite business interruption policies are not only unconstitutional, but would imperil the insurance industry’s ability to pay covered insurance claims filed by American homeowners, drivers, and injured workers.”

Kevelighan said the costs of requiring insurers to pay business interruption policies, even for only businesses that bought business interruption policies, would be about $485 billion through the end of the year.

“Pandemics simply are not insurable risks; they are too widespread, too severe and too unpredictable for the insurance industry to underwrite,” said Charles Chamness, NAMIC’s president and CEO, in a joint media statement. “As we’ve seen in the past few months, pandemics are a national problem, and we need a national solution.”

“We need a sustainable solution that provides simplicity, certainty and immediate relief to impacted businesses,” said David Sampson, APCIA’s president and CEO.

Rates charged by the program would be calculated as a percentage of the payroll and applicable expenses each participating organization seeks to replace. “That percentage will be uniform for all participants and will not vary based on geography, industry or risk,” NAMIC said.

Business could purchase the federal coverage through an insurance agent or a carrier.

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

Other features of the proposed program include:

  • To get the assistance, businesses would have to certify that they will use any funds received for retaining employees and paying necessary operating expenses—and also that they will follow applicable federal pandemic guidance.
  • Relief payments would be automatically triggered and paid immediately once there is a presidential viral emergency declaration. No advance documentation or claims adjustment would be needed.
  • Protection would have to be purchased at least 90 days before the presidential declaration of a public health emergency. The release of funds is automatically triggered following such a declaration.
  • Businesses would be allowed to choose a desired level of protection for three months’ relief for up to 80 percent of payroll (excluding highly compensated employees), employee benefits and operating expenses.
  • BCPP would be able to purchase private reinsurance to protect federal taxpayers.

While the proposed BCPP, like the National Flood Insurance Program, is run by FEMA, in other respects it’s very different from the NFIP. Jimi Grande, senior vice president of government relations for NAMIC, noted that it would be unlike the NFIP in that it would feature a parametric trigger —a presidential declaration of a viral emergency — and a formulaic payout.

As part of the application process, eligible businesses—which would include any firm incorporated in the U.S. or its territories, including nonprofits—would be required to attest both to compliance with federal pandemic guidelines and to “certify that any relief assistance would be used to retain employees and keep the business viable.”

In administering funds, however, there would be some post-relief audits performed ensuring value use of funds. Invalid uses would result in fines, required repayment and criminal penalties.

According to the trade groups, the BCPP would work with risk mitigation experts to develop pandemic risk mitigation guidelines and safety standards for businesses. These would be provided to the businesses applying for federal relief at the time of application and payment.

Source: Wells Media

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