CBI’s Statement on PRIA to Congressional Subcommittee

PRIA would replicate and extrapolate known defects in the Terrorism Risk Insurance Program.

Photo by Darren Halstead on Unsplash

The House Financial Services Committee’s Subcommittee on Housing, Community Development and Insurance will hold a hearing on Thursday November 19, 2020 entitled Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers. The hearing is expected to focus on the Pandemic Risk Insurance Act (HR 7011) introduced in May by Representative Maloney of New York.

The Centers for Better Insurance is submitting the attached Statement for the Record which warns this well-intended legislation (as well as the excess program in the joint industry Business Continuity Protection Program) would:

• Leave small businesses, nonprofits, and local governments in no better position during future pandemics than they are today as they struggle to survive COVID-19 lockdown orders while battling their insurance companies in court; and
• Grant large corporations license to design their own multi-billion-dollar taxpayer funded pandemic bailouts free from Congressional oversight, U.S. Treasury supervision, and public scrutiny.

PRIA is based on the Terrorism Risk Insurance Act (TRIA) thereby adopting and amplifying its two greatest shortcomings:

• PRIA would remove only the “virus exclusion” from small business insurance policies. More than 80% of court cases dismissing small business claims for COVID-19 business interruption so far have been based on a lack of “direct physical loss or damage” — not the virus exclusion alone. PRIA is no more than a ticket for small businesses, nonprofits, and local governments to head back to court to litigate whether a virus can cause property damage as their businesses crumple under the weight of future pandemic lockdown orders.
• PRIA would allow large corporations to set up their own personal insurance companies (known as “captives”) offering their owners generous pandemic coverages with 95% of the cost transferred to the American taxpayer. According to U.S. Treasury, up to 95 cents of every dollar paid out under TRIA following a future terrorist attack would pass through captives on the way to the coffers of large corporations. No doubt large corporations would likewise siphon off the lion’s share PRIA’s payouts through these secretive special purpose vehicles.

The American taxpayer in on the hook for “only” 80% of the $100 billion TRIA program. Perhaps continued tolerance of that program’s well-known defects is somehow justifiable. However, there can be no justification to replicate these defects and extrapolate them into a taxpayer liability for 95% of a $750 billion program.