Transparency for PPP, Secrecy for PRIA

Jason Schupp
3 min readJun 22, 2020
Photo by Warren Wong on Unsplash

As some pressure the Treasury Department to publish the names of small businesses receiving loans of up to $10 million under the Paycheck Protection Program (PPP), Congress considers a proposal to shield the identities of mega-corporates that sign up to take billions in the event of a future pandemic.

The Pandemic Risk Insurance Act (HR 7011) copies the elaborate confidentiality provisions put in place to protect the identities of participants in the Terrorism Risk Insurance Act (TRIA). Under TRIA, Treasury must:

Contract with an insurance statistical aggregator to collect the information [about participating insurance companies] which shall keep any nonpublic information confidential and provide it to the Secretary in an aggregate form or in such other form or manner that does not permit identification of the insurer submitting such information.

In other words, Congress requires Treasury to hire a scrubbing company whose sole mission is to hide the identities and other information about program participants from Treasury.

TRIA is a $100 billion government-backed reinsurance program that cannot pass the smell test under Treasury’s own Know Your Customer (KYC) rules. PRIA would put more than 7 times the amount of taxpayer funds at risk but tie Treasury’s hands just the same.

Who are TRIA’s secret participants?

According to Treasury’s 2018 report, its scrubbing company received nearly 800 responses to the mandatory 2018 data call. 575 of those responses came from so-called “captive” insurance companies.

Treasury has no idea how many captives participate in the program (much less who they are) but “estimates” those that responded represent a “significant majority” of participating captives. Even with this admittedly limited data set, Treasury’s realistic terrorist attack scenario testing revealed captives would take to up to 95 cents of every federal dollar paid under the program.

What are captives?

According to Treasury, “captive insurers are licensed insurers formed to insure the risks of a parent or other affiliated entities.” It could be a movie studio, a real estate company or a retail chain that decided to set up its own personal insurance company. A handful of states, such as Vermont and Delaware, actively market their favorable captive regulations to such large corporations.

While state regulators grant the public access to volumes of detailed data about traditional insurers, captives typically enjoy extraordinary secrecy protections under state law such as:

· Confidential regulatory examinations;

· Immunity from subpoena; and

· A gag-rule binding the Insurance Commissioner.

Should captives be excluded from TRIA and PRIA?

It may be captive insurance companies play an indispensable role in protecting the country against terrorism risk and would be essential participants in PRIA. Or, it may be these captives are merely a form of high-end corporate financial engineering facilitated by sophisticated lawyers, accountants and insurance advisors who figured out how to game the program at the expense of small businesses, nonprofits, and local governments. Either way, when any insurance company participates in a federal disaster insurance program the American people ought to at least know its name, its ultimate beneficial owner and how deep its hand is in the federal purse.

Captive of the Week

As Congress mulls over whether to extend TRIA’s corporate secrecy framework to the Pandemic Risk Insurance Act, the Centers for Better Insurance will weave together what little information has escaped about terrorism risk insurance captives in a new series entitled “Captive of the Week.” We will learn about:

· The Swiss bank that sold itself a $1.5 billion nuclear, biological, chemical and radiological terrorism insurance policy;

· The $28 million diamond reinsured by the United States Treasury; and

· The crusading newspaper reluctant to shine light on its own billion-dollar terrorism insurance captive.

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Jason Schupp

Founder and Managing Member, Centers for Better Insurance, LLC