Pandemic Risk Reinsurance Program introduced in Congress

On May 22, 2020, US Representative Carolyn Maloney (D-NY), joined by twenty co-sponsors, introduced H.R. 7011, the Pandemic Risk Insurance Act of 2020 (PRIA).

The bill would establish a federal backstop for business interruption (BI) insurance losses resulting from future pandemics, called the Pandemic Risk Reinsurance Program (PRRP). PRRP would utilize the same framework as the federal Terrorism Risk Insurance Program (TRIP) and while some of the particulars of the program align with TRIP, others do not. PRIA also shares with TRIP a public policy objective to ensure widespread availability and affordability of coverage at levels the private insurance markets are currently unwilling to write, ostensibly for a transitional period until private markets are able to provide sufficient capacity.

PRRP would be administered by the US Department of the Treasury. Some key feature of the program:

• Participation. Participation in PRRP is voluntary, unlike TRIP, which is mandatory. As with TRIP, eligibility extends to property and casualty insurers that are licensed or admitted in a US state or territory and eligible surplus lines insurers listed on the National Association of Insurance Commissioners’ (NAIC) Quarterly Listing of Alien Insurers, including captive insurers.
• Make Available Requirement. Like TRIP, PRRP has a “make available” requirement. A participating insurer must “make available” coverage for BI losses from a “covered public health emergency” that does not differ materially from the terms, conditions, amounts, limits, deductible or self-insured retentions applicable to losses arising from other events. As a prerequisite for federal compensation, the premium charged for the BI coverage and the federal share of compensation for insured losses under PRRP must be clearly and conspicuously disclosed to policyholders.
• Program Trigger. Federal reimbursement is triggered if total “insured loss” of participating insurers from a “covered public health emergency” exceeds $250 million (the program trigger for TRIP is $200 million in any calendar year). “A covered public health emergency” is an outbreak of infectious disease or pandemic (i) for which an emergency is declared, on or after January 1, 2021, under the Public Health Services Act, and (ii) that is certified as a public health emergency by the Secretary of Health and Human Services.
• Federal Share. Federal share of compensation under the program is 95% of an insurer’s “insured loss” in excess of the “insurer deductible.” (The federal share under TRIP is 80%).
• Insurer Deductible. The “insurer deductible” is 5% of the prior year’s direct earned premium for all property and casualty lines of insurance excluding crop, livestock, private mortgage, financial guaranty, medical malpractice, life and health, federal flood, reinsurance, commercial auto, burglary and theft, surety, professional liability and farm owners multi-peril insurance. (The insurer deductible under TRIP is 20%). As with TRIP, the deductible is calculated for all participating insurers within an affiliated group.
• Program Cap. The program’s liability is capped at $750 billion in any one calendar year ($100 billion under TRIP). Insurers are relieved from liability for losses in excess of their deductible and share of the capped compensation.
• “Insured Loss” is defined as loss within the US resulting from a “covered public health emergency” that is covered by primary or excess BI insurance insured by a participating insurer. BI insurance is defined as commercial lines property and casualty insurance coverage, including event cancellation insurance or other non-property contingency BI insurance provided or made available for losses resulting for periods of suspended business operation, including losses from a covered public health emergency, or civil order related to a covered public health emergency, whether provided under broader coverage for property-casualty losses or separately.
• Preemption of State Laws. State authority over participating insurers is preserved, except (i) state approval of any policy exclusion of a participating insurer for BI that is in force on the date of enactment is void to the extent that it excludes losses that would otherwise be insured losses under the program, and (ii) state laws requiring prior approval for rates and forms for BI covered by the program are preempted until December 31, 2020, although subsequent review is allowed – these laws are effectively converted to “file and use.”
• No Recoupment. Unlike TRIP, there is no authority for the US Treasury to recoup compensation paid under the program through policy surcharges.
• Limited Duration. PRRP would expire in seven years, coextensive with the expiration of TRIP, on December 31, 2027.

The press release issued by Representative Maloney’s office announcing the introduction of HR 7011 states that it has been endorsed by a long list of business and not-for-profit trade associations, including two insurance trade associations (the Council of Insurance Agents & Brokers and RIMS) and one major insurance broker. Other major insurance trade associations (NAMIC, APCIA and IIABA) have endorsed a different approach for pandemic relief, a Federal Business Continuity Protection Program that would be administered by the Federal Emergency Management Agency (FEMA) and provide revenue replacement assistance for payroll, employee benefits and operating expenses for a pandemic without linkage to underwritten property-casualty insurance coverage.

H.R. 7011 has been referred to the House Financial Services Committee. Earlier this year, Committee Chair Maxine Waters included PRIA legislation on a priority list of proposed legislative responses to COVID-19. A virtual hearing entitled, “Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers” was scheduled for June 26, 2020, but was subsequently postponed due to other business. A new date has not been announced for when the hearing will be rescheduled.

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