PRIA: A Tale of Two Policyholders
First published May 14, 2020
A discussion draft of the “Pandemic Risk Insurance Act” has circulated over recent weeks. Based on the Terrorism Risk Insurance Act, the text is an excellent jumping off point to think about what part of TRIA would work for the pandemic risk and which would not.
The draft quickly forces to the surface an uncomfortable reality that a TRIA-style “make available” requirement would separate policyholders into the haves and the have-nots.
Large corporations with the financial wherewithal and sophistication to establish their own pandemic risk insurance companies may structure multi-billion-dollar bailout plans free from government intrusion into executive pay, share buyback plans and layoff strategies. More than 500 such “captives” already participate in the TRIA and could claim as much as 95% of federal funding under that program.
Small and medium-sized businesses, churches, school districts, other nonprofits and local governments would not fare so well. These regular policyholders cannot afford to set up their own insurance companies. The standard insurance policies available to them only cover business interruption losses caused by “property damage.” PRIA’s make available requirement would cancel out a pandemic or virus exclusion — but it does nothing to address the need for policyholders to prove property damage in order to recover their business interruption losses.
A large corporate can simply negotiate with itself to remove the prerequisite of property damage. Regular policyholders must still file lawsuits seeking a judicial finding of property damage as is happening right now in the context of COVID-19. For these policyholders, facing a pandemic with PRIA in place looks a lot like the situation they are dealing with today.
Our priority should be meeting the needs of millions of regular policyholders. Once we have a solution that works for them, we can worry about what the program should do to help out insurance companies and large corporates.