"The demand for protection from future pandemic losses is massive, but coverage is small and unaffordable to most without government backing," concluded various scholars and insurance industry leaders in a recent analysis published by S&P Global Market Intelligence.
A few compelling reasons for a federal government backed pandemic coverage solution outlined include:
- The private insurance market does not have the capacity to write coverage for business interruption losses for pandemics, according to Lloyd Dixon, director of the RAND Center for Catastrophic Risk Management and Compensation. "If we want to use the insurance mechanism to cover business interruption losses and wage losses, it's going to be a necessity to have government involvement in the program," Dixon further explained.
- The absence of an affordable insurance market could harm post-pandemic economic recovery. Tarique Nageer, a terrorism insurance adviser for Marsh, recalled how reinsurance companies excluded terrorism risks from contracts following the 9/11 attacks, which caused primary insurers to withdraw coverage. When banks began requiring businesses to insure against terrorism to qualify for loans, the contracting insurance capacity caused a slowdown in the construction industry. Lenders will likely enforce similar requirements post COVID-19, projected Nageer.
- A government-backed pandemic insurance solution could help make pandemic coverage more accessible in the future. Nageer further noted that prices for terrorism coverage have come down and terms have grown more generous because of the adoption of the Terrorism Risk Insurance Act in the aftermath of 9/11. Representative Carolyn Maloney (D-NY) introduced a similar bill to create a government-backstopped pandemic insurance program in May.
You can read the full analysis here.
For more information and resources, visit fairinsure.org.