Pandemic Risk Insurance Act (PRIA) — Summary and Key Risks

Photo by Alec Favale on Unsplash

First published June 2, 2020

On May 26, Representative Carolyn Maloney of New York introduced the Pandemic Risk Insurance Act of 2020 (HR 7011).

This proposal draws on the basic framework developed for the Terrorism Risk Insurance Act of 2002. Although nearly two decades old, that program has never actually paid a claim. Accordingly, many of its design features remain (thankfully) untested.

Similar to TRIA, PRIA would require a participating insurer to make available coverage for business interruption caused by a pandemic on the same terms, limits and conditions on which it makes available coverage for business interruption caused by other events. In the context of TRIA, that has meant an insurer must offer a policy without a terrorism-specific exclusion. As highlighted in the attached, while this approach may work for terrorism, the unique nature of the pandemic risk could lead to disappointing outcomes for regular policyholders.

Also like TRIA, PRIA would throw the program wide open for captive insurance companies to write expansive coverages at low cost for their corporate owners. Multinationals with the financial backing and sophistication to set up personal insurance companies could write their own government-funded bailouts for the next pandemic crisis without fear of inconvenient restrictions on executive compensation, share buybacks or mass layoffs.

Any pandemic insurance program proposal is bound to be complicated and harbor many hidden risks. Accordingly, it is helpful to have a range of design options such as PRIA, the insurance industry’s Business Continuity Protection Program and a concept based on State catastrophe funds to support robust public debate. By openly challenging the benefits and risks of a range of proposals, policymakers are more likely to settle on an approach that works best for all stakeholders.

Founder and Managing Member of Centers for Better Insurance, LLC