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House Financial Services Committee Chairwoman Maxine Waters (D-CA) is considering potential legislation which would create a Pandemic Risk Insurance Program similar to that of the program created by the Terrorism Risk Insurance Act (TRIA). Chairwoman Waters’s proposal would be to create a temporary program that would provide a federal backstop for pandemic risk. This model would be very similar to the federal backstop that exists for terrorism risk through TRIA, but would deal with the Coronavirus pandemic instead.

Under the proposal, the program would be administered by the Treasury Department and provide a federal loss-sharing program for certain insured losses that would be triggered during the certification of a pandemic/epidemic. Other alternatives, such as a direct federal insurance program like the National Flood Insurance might also be under review. The reinsurance proposal is still only in the “discussion” stage but if brought forward, it would have major ramifications for the insurance industry.

Like TRIA, this model would require insurance companies to offer a prospective insurance program to all businesses that want it, and in return the federal government would cap the amount of losses they can accrue. Insurance companies remain concerned that this would require the insurance industry to absorb too large a portion of the risk and in a worst case scenario, such as is occurring now, possibly create financial problems for insurers that might flow over to their ability to fulfill their obligations to their policyholders.

Even worse are some efforts by regulators to retroactively overwrite existing policy exclusions, which were incorporated in insurance contracts entered willingly by the insurance company and the insureds and were approved by state insurance regulators. These ideas have thus far been mostly rejected, but it remains an area of concern for the property-casualty insurance industry which vigorously opposed it. Another idea that is gaining some political currency is an attempt to use existing insurance arrangements as a conduit by which the federal government could make its payment to smaller businesses suffering severe economic pain. This idea is actively under discussion.

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