Pandemic Business Insurance

A major insurance concern for business owners has been brought to the surface by the pandemic facing our country. Many small business owners are receiving little to no help from their business insurance carriers despite being severely impacted by shutdowns and lockdowns, which have caused significant and overwhelming business losses.

There is potential future help in the works for business owners, including a proposal before Congress that would allow insurance companies and government the chance to cooperate to cover businesses in a future pandemic. Congress has introduced the Pandemic Risk Insurance Act (“PRIA”), a bill to mitigate future business risks due to pandemics and other health emergencies.

The bill was introduced by Representative Carolyn Maloney, a member of the House Financial Services Committee, in May of 2020. In her words, the legislation would require participating insurance companies to offer business interruption insurance policies that cover pandemics and create a federal Pandemic Risk Reinsurance Program to ensure “sufficient capacity to cover these losses and protect our economy in anticipation of a resurgence of COVID-19 and future pandemics.”

The proposed plan accounts for the fact that insurance companies claim they cannot financially cover losses from another pandemic and even if they could, the premiums for such plans may be unaffordable for many business owners. Under the proposed act, the government does not charge insurers to participate in PRIA, but participating insurers bear the risk up to 5% of their annual direct earned premiums, the “insurer deductible”.

The current PRIA Bill mirrors many of the fundamental mechanics of the Terrorism Risk Insurance Act (“TRIA”), which was established in the wake of September 11, 2001 to help provide adequate terrorism insurance coverage in the United States.

PRIA aims for the establishment of a government-administered insurance backstop that would pay for business interruption claims related to a pandemic. Once the Pandemic Risk Reinsurance Program is established, participating insurance companies will annually pay deductibles to fund the program.

Representative Maloney has indicated she will be working towards getting a consensus to introduce a bill again in the new Congress and will try to move it forward the first 100 days of the Biden administration.

The exclusion of pandemic coverage from business interruption policies has left millions of businesses facing losses from which they may never recover. If Congress passes PRIA in 2021, employers and their employees can obtain some protection from future pandemics. While PRIA is not retroactive to COVID-19, it would cover future pandemics and health crises.

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