[Senate Hearing 117-579]
[From the U.S. Government Publishing Office]
S. Hrg. 117-579
EXAMINING FRAMEWORKS TO ADDRESS FUTURE PANDEMIC RISK
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HEARING
before the
SUBCOMMITTEE ON
SECURITIES, INSURANCE, AND INVESTMENT
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING HOW WE CAN BETTER PREPARE OURSELVES FOR
PANDEMIC CHALLENGES IN THE FUTURE
__________
JULY 22, 2021
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
50-790 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
______
Subcommittee on Securities, Insurance, and Investment
ROBERT MENENDEZ, New Jersey, Chairman
TIM SCOTT, South Carolina, Ranking Republican Member
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
MARK R. WARNER, Virginia MIKE CRAPO, Idaho
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
TINA SMITH, Minnesota JOHN KENNEDY, Louisiana
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
RAPHAEL WARNOCK, Georgia JERRY MORAN, Kansas
Jonathan Tsentas, Subcommittee Staff Director
Sarah Brown, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
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THURSDAY, JULY 22, 2021
Page
Opening statement of Chairman Menendez........................... 1
Prepared statement....................................... 29
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 30
Chairman Brown............................................... 4
Prepared statement....................................... 30
WITNESSES
Adenah Bayoh, IHOP Franchisee, President and CEO of Adenah Bayoh
and Companies.................................................. 5
Prepared statement........................................... 31
Responses to written questions of:
Chairman Menendez........................................ 100
Senator Sinema........................................... 100
Senator Hagerty.......................................... 101
Evan G. Greenberg, Chairman and Chief Executive Officer, Chubb... 6
Prepared statement........................................... 33
Responses to written questions of:
Chairman Menendez........................................ 102
Senator Scott............................................ 103
Senator Sinema........................................... 104
Senator Hagerty.......................................... 107
Robert Hartwig, Professor of Insurance and Finance and Director
of the Risk and Uncertainty Management Center, University of
South Carolina................................................. 8
Prepared statement........................................... 37
Responses to written questions of:
Senator Sinema........................................... 108
Senator Hagerty.......................................... 112
L. Charles Landgraf, Arnold & Porter, on behalf of the Business
Continuity Coalition........................................... 10
Prepared statement........................................... 62
Responses to written questions of:
Chairman Menendez........................................ 113
Senator Scott............................................ 116
Senator Sinema........................................... 118
Senator Hagerty.......................................... 121
Martin South, President, United States and Canada Division, Marsh 11
Prepared statement........................................... 73
Responses to written questions of:
Chairman Menendez........................................ 123
Senator Scott............................................ 125
Senator Sinema........................................... 129
Senator Hagerty.......................................... 163
(iii)
Robert Gordon, Senior Vice President for Policy, Research and
International, American Property, Casualty Insurance
Association.................................................... 13
Prepared statement........................................... 82
Responses to written questions of:
Chairman Menendez........................................ 164
Senator Scott............................................ 165
Senator Sinema........................................... 167
Senator Hagerty.......................................... 175
Additional Material Supplied for the Record
Letter from The Council.......................................... 178
Letter from NAIC................................................. 180
Statement of NAMIC............................................... 183
Statement of PIA................................................. 189
Letter from ICSC................................................. 193
Statement of IIABA............................................... 195
EXAMINING FRAMEWORKS TO ADDRESS FUTURE PANDEMIC RISK
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THURSDAY, JULY 22, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Securities, Insurance, and Investment,
Washington, DC.
The Subcommittee met at 10:02 a.m., via Webex and in room
538, Dirksen Senate Office Building, Hon. Robert Menendez,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ
Chairman Menendez. This hearing of the Subcommittee on
Securities, Insurance, and Investment will come to order. Thank
you all for joining us. We are very honored to have the
Chairman of the full Committee joining us as well, and working
with Senator Scott on issues that we both care about before the
Committee. And we appreciate our colleagues being here as well.
Just for a few housekeeping details. This hearing is in a
hybrid format. Our Members are in-person, but we will have
witnesses testifying both in-person and by video. For those
joining remotely, a few reminders.
Once you start speaking, there will be a slight delay
before you are displayed on the screen. To minimize background
noise, please click the Mute button until it is your turn to
speak or ask questions. You should all have one box on your
screens labeled Clock that will show how much time is
remaining. And if there is a technology issue, we will move to
the next witness until it is resolved.
Now to the hearing at hand.
Thanks to the Biden administration and the American Rescue
Plan, the country is well on our way to defeating COVID-19 and
restoring the promise of our economy. We put shots in arms,
money in pockets, and provided billions of dollars in relief to
hard-hit businesses. However, we still have a lot of work to
do. The pandemic has exacted a heavy toll, and we owe it to the
more than 600,000 mothers, fathers, sons, and daughters lost to
COVID-19 to examine how we can better prepare ourselves for
similar challenges in the future.
I know that imagining another public health crisis of this
magnitude is an unpleasant exercise. However, in today's
interconnected world, the question of the next pandemic is not
``if'' but ``when.''
This pandemic unleashed havoc throughout our economy.
Across the country, businesses suffered massive losses as a
result of stay-at-home orders and other containment measures
necessary to slow the spread of COVID-19. During the height of
the pandemic, 74 percent of all small businesses reported
falling revenues from the previous week, and small business
ownership dropped by 22 percent.
In a State like New Jersey that was particularly hard hit
at the onset of the crisis, 92 percent of small businesses
experienced revenue losses and 41 percent temporarily closed.
These losses were particularly concentrated in minority
communities and in certain industries, such as restaurants,
leisure, and hospitality.
Most small businesses were not able to obtain relief
through their insurance policies. The National Association of
Insurance Commissioners found that of the eight million
businesses with commercial insurance policies that included
business interruption coverage, 83 percent also included a
clause excluding claims from viral contamination, disease, or
pandemic. Unsurprisingly, 82 percent of claims have been closed
without payment.
Businesses instead relied on Federal programs. In New
Jersey alone, 84 percent of small business owners applied to
the Paycheck Protection Program (PPP) and 58 percent applied
for Economic Injury Disaster Loans. These statistics suggest
that our national insurance system was ill-prepared to cover
the losses incurred by businesses in this crisis. Therefore, I
believe it is the duty of Congress to analyze how we can better
insulate businesses and their workers from such losses in the
future.
My hope is that this hearing will be the first of many
discussions on the lessons we can learn from the pandemic and
how we can build a stronger, better-prepared, and more
resilient economy.
A robust debate on this topic has already begun in the
business and insurance communities. Today will feature
testimony on potential frameworks to manage and mitigate
financial losses that may arise from future pandemics. One of
the topics we will need to address is the basic question of
insurability, either by public or private entities, of
pandemic-related businesses losses. We must determine the
extent to which businesses, private insurance providers, and
the Federal Government are able to share the risk of losses due
to a pandemic.
We will also examine a number of pandemic risk insurance
proposals and frameworks put forward by business coalitions and
the insurance industry in the wake of this crisis. Each
presents different ideas on how much risk is borne by the
private sector versus the Federal Government, and the approach
to paying claims.
So I look forward to hearing from today's witnesses about
the merits and challenges of the various plans. Your insights
will help Congress grapple with the challenge of better
preparing our economy for future pandemics and taking steps to
ensure our businesses are not as vulnerable to economic shocks
as they were to COVID-19.
Thank you to all the witnesses who will be appearing, and I
look forward to your testimony.
With that let me recognize my friend, the Ranking Member,
Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman. Thank you for
holding this very important hearing for us to do more research
on the important ways that we can handle the next pandemic, as
you said, not ``if'' we are going to have another one but
``when'' we have another one, are we going to be more resilient
and better prepared? And I think the answer will be yes, and
hopefully, in part, because of the hearing that we are having
today under your leadership. So I just truly appreciate that.
Early in 2020, our country was in the midst of an
unprecedented economic boon, brought to us by progrowth
policies. Under the previous administration we saw unemployment
rates at 3.5 percent, the lowest in more than a half a century.
We saw the lowest unemployment rate for African Americans, the
lowest unemployment rate for Hispanics, a 70-year low for
women, and our nation was actually booming. The strongest
economy in decades. No one could have ever foreseen, however,
the global pandemic that would change all of that in a matter
of weeks.
The onset of the COVID-19 emergency had a rapid and severe
impact on the physical and economic health of our country. The
early months of the crisis were a time of exceptional economic
hardship for so many families, individuals, and small
businesses.
In my home State of South Carolina, our thriving tourism
and hospitality industries were especially hit hard. Hotels
that were used to 70 or 80 percent occupancy went down to 3
percent, 4 percent, month after month after month, trying to
hold on to their employees, hold on to their businesses, and
keep hope that somehow, some way, things would get better.
Fortunately, Congress acted quickly to pass the CARES Act,
putting much-needed cash directly into the hands of American
workers, their families, and providing rapid relief to small
businesses and helping to stabilize our markets, and frankly,
the entire economy.
The CARES Act specifically created the Paycheck Protection
Program to provide struggling small businesses and their
employees financial assistance that would allow them to weather
the storm and maintain their employer-employee relationship
they had. Congress, on nearly a unanimous basis, chose the PPP
as the appropriate approach to quickly getting cash, Federal
assistance, into the hands of small businesses, rather than
attempting to retroactively change business interruption
insurance contracts that do not cover pandemics, virus--a
choice I wholeheartedly support.
Now, over a year removed from the early frantic days of
COVID-19, Congress has the opportunity to learn from this
experience as we begin to consider what steps should be taken
to address future pandemics.
During this hearing, I look forward to hearing more about
several items--the insurability, either public or private
entities, and what pandemic-related business offices should
look like; pandemic risk insurance proposals and frameworks
that have been proposed in Congress, or by the private
stakeholders; the challenges for businesses, insurance
carriers, taxpayers, and State and Federal Governments
associated with implementing any of these approaches to
pandemic risk insurance; and whether or not implementing a
Federal pandemic risk insurance program in the United States
would prevent any long-term economic risks or affect the
country's global competitiveness.
I appreciate all of the witnesses that we have today, and,
Mr. Chairman, I look forward to continuing this hearing.
Chairman Menendez. Thank you, Senator Scott. Let me
recognize the distinguished Chairman of the full Committee,
Senator Brown, for his comments.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. Thank you, Mr. Chairman, Senator Menendez,
and my remarks will be brief. I appreciate you doing this. This
is the first hearing of the Subcommittee that Senator Menendez
and Senator Scott have conducted, and I thank them both. This
Committee is committed--the full Committee is committed to
empowering subcommittee Chairs, and Bob Menendez obviously has
been a star on this Committee overall, and on the full
Committee, and has done really yeoman's work on his
subcommittees too, and this is an example today.
The pandemic has claimed the lives of more than 600,000
Americans. Although we have made great progress, as the
Chairman said, getting shots in arms, we are experiencing
surges in areas across the Nation that have low uptakes in
vaccination rates. It is important that we continue to provide
families with the resources they need to protect themselves and
their loved ones, both medical resources, like the vaccines
that will save their lives, and also economic resources, as the
economy continues to fully recover.
While we hope to avoid, and must work to prevent, a future
pandemic, we do need to be prepared, of course. This
Subcommittee is working in a bipartisan way to explore
solutions to the economic challenges a future pandemic would
bring.
I have heard from small business owners, in Ohio and across
the country, who thought the business interruption coverage
included in their insurance policy would help them navigate the
pandemic. Then, their insurance companies too often told them
the complex forms that they signed did not actually offer them
the protection that they thought they had been promised.
Insurers have pointed out that if those policies covered the
effects of the pandemic, the industry itself might have
collapsed.
I have also heard from organized labor that union members
are losing out on jobs because studios are moving production
overseas due to the lack of a pandemic risk insurance solution.
And we know how hard this has been on the families across
the country, most importantly, that depend on those jobs to put
food on the table and to pay their mortgage and rent.
I look forward to working with colleagues of both parties--
Senator Scott, Senator Menendez, Senators Hagerty and Tillis,
and Warnock--that have been here, to discuss this issue and
come up with a solution to better prepare our economy for the
inevitability--as Senator Scott said, the inevitability of a
future pandemic.
Thank you, Chairman Menendez.
Chairman Menendez. Thank you. Let us turn to our witnesses,
and thank you all for joining us today. Testifying will be the
New Jersey small business owner, Adenah Bayoh. Ms. Bayoh owns
several IHOPs, which makes her my favorite witness today--with
all due respect to the rest of you. It is my favorite breakfast
place, which definitely makes her, as I said, my favorite
witness. She also has an incredible story to share;
Evan Greenberg, Chief Executive Officer of Chubb, who
brings 45 years of experience in the insurance industry to
today's hearing;
Dr. Robert Hartwig, Director of the University of South
Carolina's Center for Risk and Uncertainty Management, a
clinical associate professor who studies the insurance
industry;
Charles Landgraf, senior counsel at Arnold & Porter, who
has over three decades of experience in insurance, legislative
initiatives, and brings vast technical expertise to the
discussion;
Martin South, President of Marsh U.S. and Canada, with more
than 30 years in the insurance industry. Mr. South brings
industry experience and expertise to the issue of insuring
pandemic-related risks; and
Robert Gordon, Senior Vice President of Policy, Research
and International for the American Property Casualty Insurance
Association, who has extensive experience in insurance
Government policy.
So we have a star-studded cast. We appreciate your
attendance. We look forward to our discussions with you.
We ask our witnesses to honor and remember the 5-minute
rule in order for us to have a conversation with you, in terms
of your oral testimony. Without objection, your full statements
will be included in the record. And I also remind our
colleagues that we have a 5-minute rule too, which I hope to
stick to closely in order to get through everybody an
opportunity.
So with that, Ms. Bayoh, please begin your statement.
STATEMENT OF ADENAH BAYOH, IHOP FRANCHISEE AND PRESIDENT AND
CEO, ADENAH BAYOH AND COMPANIES
Ms. Bayoh. Chairman Menendez, Ranking Member Scott, and
Subcommittee Members, thank you for the invitation to testify.
I am a restaurant owner several times over. I am an IHOP
franchisee, cofounder of Cornbread Farm To Soul, Founder of
Urban Vegan, and the President and CEO of Adenah Bayoh and
Companies. I am also a member of the National Restaurant
Association and the New Jersey Restaurant and Hospitality
Association.
I am fortunate to have lived the American dream,
immigrating to the U.S. at the age of 13, escaping a civil war
in my native country of Liberia. After high school I earned a
college degree in business management. I then worked in banking
and began purchasing multifamily homes as investments.
Subsequently, I left banking to build my own business with a
focus of empowering and transforming disadvantaged communities.
Inspired by my grandmother, who owned a restaurant in
Liberia, I used my real estate investment profits to open an
IHOP in Irvington, New Jersey. At age 29, I was the youngest
IHOP franchisee in the nation. The location quickly became the
fastest-growing in the Northeast and it remains one of the top
grossing in the region.
Pre-COVID, I employed 229 employees. I am guided by a
commitment to service and continuous investment in my staff,
training new hires with valuable life skills that extend
throughout life and future careers.
I have been honored to receive many accolades over my
career. For instance, being named as one of the TOP 50 Women in
Business by NJBIZ, New Jersey, appointed to the Federal Reserve
Bank of New York Advisory Council, and making the Ebony Power
100 list.
Despite all of my hard-earned successes, everything crashed
in March of last year, when restaurants were among the first to
shut down. I had business interruption insurance with Liberty
Mutual and Chubb Insurance, intended to cover 12 months of lost
business income, if my business was to ever be shut down. I
paid annually an average of $275,000 in insurance premiums.
When the pandemic hit, and the Governor ordered my businesses
to close, I was shocked that my insurance company and coverage
was not there for me. Viruses and pandemic were excluded from
my policy.
At the outset of the crisis, despite mandatory shutdown, I
made the courageous decision to pay my employees, including
single mothers, their average weekly pay, whether they worked
or not, so that they could put food on the table until
Government programs could fill in the gaps. I was nearly
bankrupted by this, but I have no regrets. I had to make the
difficult decision to close three newly build stores in
Pennsylvania and lay off 16 persons due to those closures. Some
of my restaurants were averaging 50 percent of their revenue at
some point during this pandemic. Yet we tried to continue to
help our communities. We gave away almost 10,000 free pancakes,
fed essential workers in need, including overnight nursing
staff that could not get food because their cafeteria was
closed. We gave out free lunches to school children.
This pandemic significantly showed the shortcomings in our
country's preparedness. I support the National Restaurant
Association, Business Continuity Coalition call to create a
Pandemic Risk Insurance, modeled after terrorism risk insurance
enacted after 9/11.
A solution is needed now, a solution that ensures that
businesses and employees, especially ones in black and brown
communities like mine, are prepared for future pandemics. Now
is the time for a solution.
Thank you for the opportunity to testify. I would be more
than happy to take any questions.
Chairman Menendez. Well, thank you very much, Ms. Bayoh.
You have an inspiring story, and you even have met within the 5
minutes, so you set the tone for everybody else. So thank you
very much.
With that we will turn to Mr. Greenberg of Chubb.
STATEMENT OF EVAN G. GREENBERG, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, CHUBB
Mr. Greenberg. Good morning Chairman Menendez, Ranking
Member Scott, and Members of the Subcommittee. I am Evan
Greenberg, Chairman and CEO of Chubb. Thank you for inviting me
to discuss pandemic risk and a public-private partnership that
leverages insurance infrastructure and risk sharing.
COVID-19's toll in lives and harm to the U.S. and global
economy has been catastrophic. We should, in my judgment, take
the lessons learned to improve our health response capabilities
to future pandemics. We can also lessen the economic blow by
building a financial backstop that is triggered when economic
activity is disrupted. To this purpose, the insurance industry
can play an important role in partnership with the Federal
Government.
Pandemics, unlike other catastrophes such as earthquakes,
hurricanes, and floods are not limited to a specific geography
or time period, and can affect entire economies and most of the
population at the same time. This results in losses so great
that the event is uninsurable for business interruption
coverage by the insurance sector alone.
COVID-19-related business interruption losses in the U.S.
far exceed the total capital of the U.S. property and casualty
industry. The industry simply does not have the wherewithal to
broadly assume such risk. Our balance sheets are finite and the
risk for all intents and purposes is infinite.
To address COVID's economic damage, Congress enacted
assistance programs totaling trillions of dollars. While these
programs have been largely successful, their ad hoc nature can
lead to inefficiencies, delays, and uncertainties.
There may be a better way forward--a public-private
partnership between the insurance industry and the Federal
Government to provide business interruption protection.
Combining the insurance industry's risk insight and experience
with the Government's balance sheet provides the foundation for
an affordable, efficient, liquidity backstop for small
businesses and a market-based program for larger businesses. A
public-private partnership would provide greater certainty to
businesses so they can keep employees on the payroll and pay
their bills. Ultimately, private sector participation will
encourage the development of direct and secondary markets,
which can reduce the Government's financial burden over time.
Any pandemic insurance program should distinguish the
unique needs of small businesses from medium and large ones.
Small businesses are generally at much greater immediate risk
because they have more limited financial resources and risk
management capabilities.
Chubb has proposed a program recognizing the need for small
business rapid liquidity, providing predictable, efficient, and
prompt payment. The elements of such a program include, in the
first instance, Government subsidization of the premium charged
to small businesses to ensure affordability and participation.
In the event of a pandemic that results in small business
closure, insurers would participate in the first wave of
losses, up to a certain amount. To accomplish this, the
insurance industry would receive an adequate rate for its
portion of the risk, and the Government would assume the cost
of the tail risk.
For medium and large businesses, a market-oriented approach
is more appropriate. Given their greater financial resources,
they should not need subsidization of premiums. Under this
plan, the Government would establish a reinsurance facility,
solely to cover business interruption pandemic risk for medium
and large businesses, for an appropriate price. Private
insurance companies could write policies at market terms,
retain a portion of the risk, then reinsure the rest through
the Government facility.
Our proposed framework builds on these concepts. Depending
on the severity of a future pandemic, this may only turn out to
be a partial solution. However, it is a robust, fiscally
responsible plan, and I welcome the opportunity to discuss it
further with you. I look forward to your questions.
Chairman Menendez. Thank you very much. Dr. Hartwig.
STATEMENT OF ROBERT HARTWIG, PROFESSOR OF INSURANCE AND FINANCE
AND DIRECTOR OF THE RISK AND UNCERTAINTY MANAGEMENT CENTER,
UNIVERSITY OF SOUTH CAROLINA
Mr. Hartwig. Thank you, Chairman Menendez, Ranking Member
Scott, and Members of the Subcommittee. My name is Robert
Hartwig and I am a Professor of Risk Management Insurance and
Finance at the University of South Carolina, and serve as the
university's Director for its Risk and Uncertainty Management
Center. I have been asked by the Committee to provide testimony
describing the challenges related to the insurability of
pandemic risk and to discuss potential public policy approaches
to future pandemics.
As has already been discussed on a number of occasions so
far in this hearing, the COVID-19 pandemic's twin tolls on
human health and the global economy are among the greatest in
history. As of mid-2021, the virus had claimed more than
600,000 lives in the United States alone, along with 33 million
confirmed cases. The economic toll of COVID itself has been
similarly tragic.
In my written testimony, Figures 1, 2, and 3, if you would
like to refer to those, make clear that the signature economic
consequence of the pandemic was a massive and abrupt collapse
in economic activity. Real GDP in the United States plunged by
nearly one-third during the second quarter of 2020, while
unemployment soared to nearly 15 percent, reflecting the loss
of some 22 million jobs.
The ensuing rapid collapse in aggregate demand, measured in
trillions of dollars, led to a precipitous decline in income
for millions of families and businesses alike, small businesses
in particular. Business income losses at the height of the
pandemic were estimated to be as much as $1 trillion per month.
It is important to note that disruptions to business in
come due to changes in the macroeconomic environment, such as
occurred during the COVID recession, have never been privately
insured, for multiple reasons. Those reasons are summarized in
Figure 6 of my written testimony, which describes the
traditional criteria necessary for insurability.
Foremost among these factors, with respect to COVID, is the
simple fact that the magnitude of such losses is simply too
large. Consider, for example, that the estimated $1 trillion in
monthly business income losses is 200 times the $4.5 billion
commercial insurers collect each month in property insurance
premiums, on average.
Business income coverage has never been intended to
function as an extension of Government macroeconomic
stabilization policy. Business income insurance is an optional
coverage, available to businesses purchasing commercial
property insurance. Payments are triggered if, and only if,
there is direct physical loss or damage to insured property
from a covered cause of loss. Overwhelmingly, courts have
rejected the assertion that business income losses arising
during the pandemic were covered, citing the lack of direct
physical loss or damage to covered property.
During the early months of the pandemic, however, a number
of proposals that would involve the participation of private
insurers in future pandemics were introduced. Among the best
known are the Business Continuity Protection Program, or BCPP,
and the Pandemic Risk Insurance Program, or PRIA. The BCPP,
very quickly, would use the commercial insurance industry's
plumbing, if you would, to provide up to 80 percent of 3
months' worth of revenue, though insurers themselves would bear
no actual risk. On the other end of the spectrum, under PRIA,
insurers would be required to bear nearly $50 billion in losses
for events reaching the $750 billion program cap.
Notably, neither program would compel businesses to
purchase coverage, raising serious doubts about the ultimate
effectiveness of such programs, as well as others.
So while the benefits and costs of all program proposals
should be evaluated, a more fundamental question to ask is
whether any such program is needed at all. Bearing in mind that
all of the pandemic insurance frameworks currently under
consideration were developed during the very early months of
the pandemic, it is worth considering their prospective
utility, given the benefit of hindsight and nearly 18 months of
experience in managing the pandemic.
A reasonable assessment is that no program is needed, and I
make this assessment based on numerous observations detailed in
my written testimony related to the unquestionable success of
existing, expanded, and new public policy approaches adopted
during COVID and the complexity and the cost of any pandemic
insurance program to be implemented. For example, massive
fiscal stimulus in the form of $5.7 trillion in pandemic relief
to date, coupled with the Fed's extraordinary efforts to keep
interest rates low, have succeeded in delivering very
substantial assistance to consumers, businesses, and entire
industries. GDP growth has surged since the third quarter of
2020, and the unemployment rate has fallen precipitously.
The question is, therefore, this. Given the observed public
policy successes to date, would the implementation of any of
the current proposed pandemic programs lead to a discernably
superior outcome for businesses, or the economy overall?
In conclusion, the experience of COVID has reinforced the
generally accepted view that large-scale business income losses
arising from pandemics are uninsurable in the private sector.
Such losses are driven largely by shifts in aggregate demand
and consumer behavior, not actual property damage. Moreover,
given nearly 18 months of experience with COVID, it is clear
that repeated, aggressive application of targeted yet flexible
relief, in the form of fiscal and monetary stimulus, has been
effective in countering many of the most severe negative
economic consequences associated with the pandemic.
Consequently, the value of instituting a potentially
costly, inflexible, and untested pandemic risk insurance
program at the current time can be reasonably questioned.
Thank you for the opportunity to testify before the
Committee, and I look forward to responding to your questions.
Chairman Menendez. Thank you. Mr. Landgraf.
STATEMENT OF L. CHARLES LANDGRAF, ARNOLD & PORTER, ON BEHALF OF
THE BUSINESS CONTINUITY COALITION
Mr. Landgraf. Thank you, Chairman Menendez, Ranking Member
Scott, and Subcommittee Members. I am Charles Landgraf of
Arnold & Porter, appearing today on behalf of the Business
Continuity Coalition.
We agree with Mr. Greenberg that now is the time to
establish a public-private partnership to address the
protection gap that has been exposed, and indeed exacerbated,
by the pandemic.
As both the Chairman and Senator Brown have noted, business
interruption proved elusive, but I also want to focus today on
coverage in other lines of insurance that have either been
withdrawn or restricted going forward, that were previously
available. Our Business Continuity Coalition brings an
important voice, indeed many voices, to this policy discussion.
The coalition currently--and it is growing--consists of 44
trade associations and major companies across many sectors of
the economy, representing, we think, more than 70 million jobs,
from health care and dining and hospitality, the two largest
employment sectors in the private economy, as well as home
building, manufacturing, construction, finance, real estate,
media, film, entertainment, professional sports, and
professional services, just to name a few.
We understand that Governments are still dealing with
recovery from the pandemic, but we believe that this is,
nevertheless, the right time to repair and improve the
protection fabric to the economy for those jobs. We are seeking
to restore good-quality insurance, if I can call it that, that
meets the needs of the real economy and ultimately probably
represents a more authentic and understandable alignment of
expectations between businesses and insurers.
Take two examples in our coalition: restaurants and film
and TV. You have heard from Mrs. Bayoh about her insurance
needs at the time and going forward that are not being met by
the insurance industry. The restaurant sector alone is still
down 1.3 million jobs since the pandemic, and insurance is
undoubtedly one of the holdbacks to that business.
Our written statement provides dramatic evidence of the
continuing lack of insurance jeopardizes film finance, for
example, especially independent productions. Many have been
lost for good. Many are going offshore, as Senator Brown noted.
The U.K. has a Restart program that specifically responds to
the withdrawal of insurance, and frankly, in the film and TV
production industry, no insurance, no financing. Canada,
Australia, and other countries have similar programs that are
attracting what had been U.S. productions, to their shores.
There are many other examples that we could provide in
other sectors of the real impediments and frictions that lack
of insurance represent to a recovery. Some, including witnesses
today, contend that pandemics are not insurable. What this
really means is that pandemics are not fully insurable without
some Government support. We heartily agree with Mr. Greenberg's
formulation on this, that a public-private partnership is the
answer. We know that pandemics are complex. We know that
meaningful protection will require a public-private
partnership.
We would like to point out that in our written submission
there are a number of surveys of different sectors of the
economy. Overwhelmingly, business policyholders want to buy
insurance, not get a Government benefit. We need to have a
workable insurance program. The real question is now to do
this. There is plenty of evidence of successful public-private
partnerships throughout history, U.S. and globally. We have
included many in our written submission. We think TRIA is the
most important and most relevant here.
We applaud the serious proposal by Chubb and by APCIA.
These are serious proposals on business interruption insurance.
We want to emphasize that there are other insurance lines that
have also been impacted, and we think those need to be part of
a proposal. It would be ironic if essential businesses that did
not shut down, that shouldered through the pandemic, cannot get
their insurance needs met. They have insurance needs just like
business interruption, only they are different, and we need to
include those.
In the figurative minute before the pandemic struck there
was no doubt, among the insurance industry or policymakers,
that every percentage reduction of uninsured losses in the
economy reaps multiple benefits in GDP and financial, physical,
and cultural resilience. We need to get back to that kind of
thinking and devise a program. Narrowing that protection gap
will not be a silver bullet for national resilience, but doing
so, however, is an indispensable ingredient to a full recovery.
Thank you very much.
Chairman Menendez. Thank you. Mr. South, who will be with
us virtually.
STATEMENT OF MARTIN SOUTH, PRESIDENT, UNITED STATES AND CANADA
DIVISION, MARSH
Mr. South. Mr. Chairman, Ranking Member Scott, and Members
of the Committee, I am Martin South, President of Marsh's U.S.
and Canada Division. We are privileged to provide insurance
brokerage and risk advisory services to nearly 170,000
businesses, nonprofit organizations, and public entities in the
United States and Canada. Thank you for the opportunity to join
you today.
COVID-19 has affected every one of us, personally and
professionally. Although the pandemic is first and foremost a
human tragedy, we are deeply concerned about its impact on the
global economy and on our clients. Our role as an insurance
broker is first and foremost to be an advocate for our
policyholders, our clients.
Marsh McLennan's expertise in pandemic far precedes COVID-
19. For nearly two decades we have partnered with the World
Economic Forum to produce the Global Risk Report, which has
long warned of pandemic risk. We helped the World Bank
structure its first-ever pandemic risk bonds in 2017. In 2018,
we developed an innovative insurance product called PathogenRX,
to provide pandemic business interruption coverage to certain
industries. And we are collaborating with international
organizations to help mitigate the risk from vaccination
programs for lower-income countries and regions.
We have engaged in discussions with 40 Governments
worldwide since the start of the pandemic, and we have found
clear interest for Government solutions at the country or
regional level. We believe it is imperative to use our
collective global experience from COVID-19 to help build
stronger and more resilient economies ahead of the next
pandemic.
I would like to summarize my written statement in three
main points. First, the pandemic has created recovery and
resilience challenges for businesses, Governments, and
insurance marketplace. These issues must be addressed to
effectively manage for a future pandemic.
We have seen, over the past year, that property and
liability insurance policies are severely limited in their
ability to respond to pandemic-related losses. The magnitude of
global economic losses, the difficulty in predicting what
actions Governments will take to contain infectious disease,
and the potential for rapid, drastic changes in consumer demand
make pandemic risk impossible for insurers and reinsurers to
assume without Government backing. Many insurers are now
broadly excluding coverage for pandemic risk from all policies,
and are expected to continue doing so in the future.
Second, notwithstanding the challenges, we believe parts of
the pandemic risk are insurable, just like the catastrophic
risks presented by wildfire, earthquake, hurricane, and
cyberattacks. Insurance plays a vital role in the U.S. and
global economies. Without it, businesses across industries of
all sizes would be unable to start new ventures, create jobs,
and grow to their full potential. Congress should leverage the
deep expertise of the risk and insurance industry to create a
program that uses what we learned from COVID-19 to help protect
us against the next pandemic. With support from the Government
and the right economic incentives for insurers and
policyholders, insurance will carry out its traditional role of
mitigating risk. The right risk program will spur new
technologies and ways of working to chip away at the enormous
losses associated with pandemics. That, in turn, will help make
pandemic risk more manageable, enabling our economy to build
the resilience it needs.
Finally, and most importantly, we need to use what we
learned from this experience to create an effective and
efficient public-private partnership and build back stronger.
There are many examples of Governments and the private sector
coming together to manage catastrophic risks, from the fire
brigades after the Great Fire of London in 1666 to the
Department of Homeland Security and the Terrorism Risk
Insurance Act in the aftermath of 9/11. In short, the insurance
industry and the Government have a long, successful track
record of partnering to enhance risk management techniques and
increase society's resilience.
Although pandemics have occurred many times, COVID-19's
economic impact has been on a different magnitude. The
potential severity of future pandemics once again calls on
Government action to create the public-private partner program.
Marsh McLennan believes that now is the time for a solution
that leverages the insurance expertise and infrastructure that
is already in place, a solution that allows for insurers,
reinsurers, and other capital providers to play a limited but
crucial role, a solution that will yield stronger and more
effective protection for policyholders and for the country.
My colleagues and I stand ready to help the Committee with
its work. Thank you for the time and opportunity to advocate on
behalf of our clients.
Chairman Menendez. Thank you. Mr. Gordon, who is with us
virtually, as well.
STATEMENT OF ROBERT GORDON, SENIOR VICE PRESIDENT FOR POLICY,
RESEARCH AND INTERNATIONAL, AMERICAN PROPERTY CASUALTY
INSURANCE ASSOCIATION
Mr. Gordon. Chairman Menendez, Ranking Member Scott, and
Members of the Subcommittee, I am Robert Gordon with the
American Property Casualty Insurance Association, the primary
national property casualty trade association.
My favorite quote, often attributed to Einstein, is, ``If I
had an hour to save the world I would spend 55 minutes
understanding the problem and 5 minutes debating solutions.''
APCIA very much appreciates the Subcommittee's leadership in
working to understand the potential impacts of future
pandemics.
Insurers are in the business of managing risk and we always
seek to provide risk management solutions for consumers. But
not every risk has an insurance solution. APCIA and globally,
the Geneva Association has underscored that pandemic business
continuity risk was never possible, nor intended to be covered
by the private sector.
The National Association of Insurance Commissioners, the
State insurance regulators, told Congress at the beginning of
the pandemic that ``insurance works well and remains affordable
when a relatively small number of claims are spread across a
broader group. It is therefore not typically well suited for a
global pandemic where virtually every policyholder suffers
significant losses at the same time, for an extended period.''
The domestic and global insurance underwriters and our
regulators are stating very clearly, and nearly unanimously,
that pandemic business continuity risk is not something suited
for insurance. Insurance does believe we can be a resource as
risk management experts. We have learned several lessons from
our COVID research that might provide helpful background for
the Subcommittee's analysis of the problems to be solved.
It is now clear that most COVID economic losses have
resulted from a plunge in macroeconomic consumer demand for in-
person services, not from Government-imposed shutdowns or
restrictions.
My written testimony summarizes APCIA's extensive analysis
comparing States and countries that had strict lockdowns, no
lockdowns, and partial lockdowns. Their economic performance
has been largely comparable. Government closures had only a
minor impact on losses. Even businesses designated as essential
and allowed to remain open, and reliant on in-person services,
suffered enormous losses as consumers exercised very rational
decisions to avoid commercial activity that risked human
transmission of COVID.
Most of the discussions trying to force an insurance
solution onto pandemics have focused on business interruption
insurance, but business interruption insurance does not cover
declines in consumer demand. It only covers operating losses a
policyholder suffers while physically damaged property is being
repaired. Research by the CDC has now proven that the risk of
COVID transmission via surface contact is extremely low, less
than 1 in 10,000, and COVID can be easily and quickly cleaned.
COVID-19 does not cause property damage and thus has no
connection to business interruption insurance, which is a
property policy.
Also important is that pandemic losses have been highly
concentrated in the in-person service sector, particularly
leisure and hospitality, disproportionately harming vulnerable
minority and women business owners and low-income workers, like
Ms. Bayoh.
The critical distinction is not small versus big business
but rather which sectors and workers are the most vulnerable
that the Government can most efficiently and effectively
protect. While our current focus is on helping analyze the
problems to be solved, in the spring of 2020, APCIA, NAMIC, and
the Big I developed the Business Continuity Protection Program,
which recognizes the inherent uninsurability of business
continuity pandemic losses but offers the industry's help in a
servicing role. The BCPP was conceptualized as how to improve
the Paycheck Protection Act, the PPP, if it could have been
established in advance, with the benefit of hindsight.
Regarding some of the earlier testimony, I hope the
Subcommittee will not fall prey to attempts to conflate
pandemic risks with terrorism. I was the congressional
committee staff who developed the initial TRIA program with our
members, and Senators, pandemics are not like terrorism. The 9/
11 planes damaged only two locations, lasted one morning,
causing only $27.5 billion in insured losses.
COVID-19 has impacted the entire world for over 18 months,
causing $28 trillion in losses. Only an extremely small
fraction of businesses had losses and claims in 9/11, whereas
Chairman Menendez cited 82 percent of New Jersey businesses
applying for relief. Even with a backstop, the private industry
could not settle claims for 82 percent of businesses
simultaneously.
Yes, insurers provide some event cancellation coverage
without pandemic exclusions, but after billions of dollars in
losses and excessive premiums it is no longer widely provided.
But widespread coverage for pandemic economic downturns and
declines in consumer demand has never existed in the private
sector, and despite the proposals today, State regulators and
nearly all underwriters are warning insurance is not well
suited for that risk.
APCIA appreciates the opportunity to work with the
Subcommittee to understand the problems to be solved. We hope
the lessons learned can be useful in designing tailored,
affordable, and flexible solutions, but avoiding creating a
multitrillion-dollar, long-term Government program that forces
insurers to broadly cover their commercial contracts' pandemic
risk that most cannot responsibly provide and will harm the
underlying markets.
Thank you.
Chairman Menendez. Well, thank you all. We will start a
round of questions, and I will start myself.
So I gather from this testimony, Mr. Hartwig and Mr.
Gordon, that it is your view that the appropriate response
right now is for Congress to do nothing and just wait for the
next pandemic to strike, and we will deal with it then.
Mr. Hartwig. Sir, what I would argue, in fact, is that
Congress has actually been doing quite a good job with respect
to responding to the pandemic, and that through the six
programs that you and Congress have approved to date, providing
nearly $6 trillion in relief to millions of American families
and millions of businesses across the United States, has had an
extraordinary favorable impact. And I would argue, as an
economist, if you were to try to see if any of the programs
that have been proposed today, would they move the needle in
some sort of way with respect to some net measurable aggregate
benefit to the business community or to the economy overall, I
do not think that that benefit would necessarily be
discernable.
I would also add----
Chairman Menendez. But we did that on the fly, right? So we
did in a way where we were trying to figure out what was the
best response. I am not sure that it would not have been more
efficient if we had prepared for the possibility and thought
about what that might mean.
Mr. Hartwig. And you do have exactly that opportunity
today, to think about ways in which fiscal and monetary policy
can be adapted in ways that could perhaps make the next
pandemic, which could be decades from now, potentially more
efficient. But even through the six programs that you have
approved to date, there have been tweaks to the PPP and other
programs that have made those programs more efficient. So
Congress has demonstrated extraordinary flexibility in its
design of the programs that have existed so far, and those have
all inured to the benefit of businesses.
Chairman Menendez. Mr. Gordon, your answer to that
question?
Mr. Gordon. Yes. Thank you, Mr. Chairman. I would agree
with Dr. Hartwig. I think Congress has exhibited great
leadership, including this Subcommittee. The programs developed
have had an enormous beneficial effect. In fact, the CRS,
Congressional Research Service, just issued a report the other
week showing how the U.S. intervention measures have helped our
economy recover much more than other foreign countries that
they compared to.
Congress and your Subcommittee are also doing exactly the
right thing, analyzing the crisis to understand the problems to
be solved. We hope to help inform that effort. And then APCIA
very much supports examining the Paycheck Protection Act, the
PPP, and how it can be improved, and that was the basis of our
proposal is expanding the PPP, establishing it in advance with
the hindsight of what we know. And that may include the
distribution roles in the private sector, but ultimately, Mr.
Chairman, as you said, when you have over 82 percent of the
businesses all applying for relief at the same time, that is
not the kind of risk that the private industry can bear and
settle all those claims simultaneously.
Chairman Menendez. OK. I have to be honest with you. I
heard echoes of this when we were dealing with the question
after September 11th, as a Member of this Committee, about
terrorism risk insurance. And I was told at that time that the
industry should not play a role in it because it was an
uninsurable set of circumstances.
So I appreciate--you cited a magnitude that is global. I am
only interested in the United States, which reduces the
magnitude, obviously, of what we are talking about. Still very
significant.
So Mr. Landgraf and Mr. Greenberg, you seem to have a
different view. So why are you convinced that an insurance-
based solution, with a Government backstop, obviously, is
realistic, given the concerns that we just heard? Mr.
Greenberg.
Mr. Greenberg. I would make a couple of observations.
First, catastrophes, when they occur, are of all different
sizes. We are looking at the most extreme right now in COVID-19
when we think about pandemic. We have experienced pandemics on
a fairly regular basis over the last 50, 100 years, and longer,
and they are of varying sizes, number one.
Number two, shutting entire economy down for an extended
period of time and spending the kind of trillions of dollars we
have spent as a way of managing pandemic is not a future
solution, and it is something that we have to think about. We
have to have much better health care response early on and
learn from this. Our ability in PPE, our ability with masking
early and social distancing, coming to grips with the notion of
digitally tracing and isolating, those are ways of restricting
the time we need to be shut down. If we can restrict the time
then we restrict the overall amount that the economy suffers,
and the length of time it suffers. A private partnership
solution may not be a total solution in insurance, but it is a
more appropriate solution than the one where the economy is
shut down for 18 months or potentially longer.
Chairman Menendez. Mr. Landgraf, and then I will turn to
Senator Scott.
Mr. Landgraf. I do not know that I could have said it any
better than Mr. Greenberg. I completely agree with his remarks
here. I would also echo what you said about 9/11, which looks
isolated and contained today, but immediately after 9/11 it
looked like a systemic and all-pervasive risk, and the
insurance industry reaction was one of uninsurability, which
has proved not to be the case with a public-private
partnership.
I think we are also a little bit of a straw man talking
about business interruption. As important as it is, and it is
absolutely essential, and we think that the Chubb plan hits on
most of the important parts, we are not convinced necessarily
that there should be a hard cliff between small and medium-size
in numbers. But I think those are the kinds of things we can
discuss. We understand the capping benefits for large and
medium-sized businesses on business interruption. It is all the
other lines, lines where there was clearly coverage as of March
2020, other lines of insurance--professional liability, general
liability, employment practices liability. For essential
businesses that continued to operate are now being told that
going forward they do not have that coverage.
Those lines of business did not have across-the-board
claims, and yet there is a withdrawal from them. We are not
blaming the insurance industry. We are saying with a public-
private partnership and a backstop that we can preserve and
restore, and maybe even improve, those lines of business in the
ways that Mr. Greenberg is suggesting, I think, as we learn how
to deal with pandemics of different sizes. Thank you very much.
Chairman Menendez. Thank you. Senator Scott.
Senator Scott. Thank you, Mr. Chairman, and I am sure that
you all are aware of the fact that I spent some years in the
insurance business with an Allstate franchise. And I would say
that leaving the insurance business was a blessing in many
ways, and now I know why. I tell you, this is a fascinating
conversation. I have been on this topic of insurance for the
last several months, working on reinsurance from a police
liability and a municipal liability perspective.
Mr. South, Marsh is with us virtually, and I will say that
Kevin Bryant has been providing me some assistance in
understanding and appreciating the challenges of reinsurance,
comparatively speaking is a sliver, a literal sliver, and it is
incredibly expensive and really hard to see how we work that
out. But it something that we have been working on.
Let me just say a few things about where we are and get you
all to respond, and Dr. Hartwig, I will have a specific
question for you. As a part of the insurance industry back in
the days of Hurricane Andrew, had Hurricane Andrew just shifted
a little more inland it would have essentially bankrupted State
Farm, Allstate, nationwide, just on its impact on the coastal
States.
I think about the fact that I just did some quick research.
The total premiums paid for property and casualty insurance in
America in 2019, was $633 billion. We just heard that the
business impact, under COVID-19, was $1 trillion a month. The
fact that we are having a conversation where the insurance
industry is willing to lean in at all is a fascinating
conversation to be a part of. Certainly understanding and
appreciating the backdrop, the backstop, frankly, of some
federally backed program makes it tenable to be a part of that
conversation. But literally, we are talking about numbers that
are so massive that it is hard to digest quickly.
We think about the Paycheck Protection Program, which was
providing 16, 20 weeks of payroll and overheard for that same
period of time, costing $800 billion. So for literally 16 and
20 weeks of business insurance, we are talking about a sum
total that exceeds every single penny brought in for every
single risk exposure in the entire insurance industry in our
nation.
So with that as a backdrop, Dr. Hartwig, would you just
walk me through those criteria that are typically used for
insurability, and how that differs from this conversation that
we are having about a pandemic risk exposure?
Mr. Hartwig. Sure. Thank you, Senator. And those numbers
that you just cited illustrate the point. One of the criteria,
for instance, the one I cited as being first or foremost, is
the fact that in my chart, which would be number four, no
ruinous catastrophic losses. So clearly whether we are talking
about the fact, as Mr. Greenberg cited, that business income
interruption losses exceed the total capacity of capital in the
entire industry, or the premiums collected, I mean, it is very,
very clear there.
But we have also heard testimony that described a number of
the other criteria that make it very difficult, such as a large
number of exposure units. So what do I mean by that? Typically
when we think about insurance we have the losses of the few are
paid for by the premiums of the many. When we are talking about
pandemic, essentially every business was affected nearly
simultaneously. That is completely anathema to what insurance
has always been throughout its nearly 2,000-year history.
If you look at some of the other criteria--and I will not
want to run through all of them--but when we look at sudden or
accidental losses, we can look at Hurricane Andrew as kind of
an act of God, an act of nature. We have good data on how
frequently these events occur and the paths that they typically
take, much better than we did at the time of Hurricane Andrew.
But at the same time, when we are looking at pandemics, the
decisions as to whether to close a business or not, which
business would be deemed to be essential, how long they must be
closed, when they can reopen, and at what percentage, these are
decisions that are not made by Mother Nature. These are made by
thousands of individuals all across the United States. This is
a virtual impossibility for the insurance industry to
anticipate these sorts of actions. In fact, it is an
impossibility.
So I could go on down the list, but I am mindful of the
time here. The reality of it is, is it is not just about the
dollars. It is about the aggregate type of knowledge we need in
order to appropriately underwrite this risk is simply not
available to the industry.
Senator Scott. Thank you, Dr. Hartwig, and Chairman, thank
you for the extra minute or so. Let me just see if I could sum
of what you just said, because I am a simpleton. If every
insured in the Nation has an event where the insurance company
has to pay out for every single insured at the same time, and
the event is 100 times more than the insurance premiums coming
in from every single insured, it is kind of hard to insure it.
Mr. Hartwig. Exactly. Insurers' aggregate exposure is much,
much larger than the actual premiums that they take in.
Senator Scott. I just wanted to make sure I was right. So
when we were talking about the $4.5 billion coming in for
business interruption, for a $1 trillion monthly claim, that is
kind of hard to pay.
Mr. Hartwig. That is impossible.
Senator Scott. OK. I just wanted to make sure.
Mr. Greenberg, just a quick question on the Federal role in
a backdrop that might make the thing that we see, at least I
see, as impossible, possible, it would be the ability to cost
share with a level of certainty or a finite number on the front
end, so that we could literally shift some of the burden away
from the Government, away from taxpayers to insurance
policyholders and insurance companies. And so you would need
some blend that gave you the type of certainty and
predictability that an actuary could come to a conclusion that
this premium helps us absorb enough of that to be in the
business. Is that accurate?
Mr. Greenberg. It is accurate, but I would recharacterize
it for a second, Senator.
Senator Scott. Yes.
Mr. Greenberg. What we are describing, and I described and
Mr. Hartwig described, is that the tail risk, the size of the
event is such that it overwhelms the insurance industry. It is
uninsurable. If you chopped the tail, and the Government takes
that tail risk--and you have to decide if that makes any
sense--then the insurance industry can actually participate.
And, by the way, the notion of insurability and what is
not, well, I point you to cyberinsurance today, where the
insurance industry actively underwrites cyberinsurance. Think
about the fortuity around cyberattacks. Think of the
interconnectivity of everything digitally. Think that there is
another risk that has a catastrophic nature to it, that has no
time limit and geographic bound, yet the insurance industry is
growing in the cyberbusiness pretty quickly.
So the notion that we cannot touch pandemic if the
Government shares the tail is unrealistic to me.
Senator Scott. Thank you. I appreciate you allowing me to
have a little more time. This is a very interesting and
important conversation, so I look forward to continuing it.
Thank you.
Chairman Menendez. Absolutely. Senator Moran.
Senator Moran. Chairman, thank you, and thank you to our
witnesses. I will start with Mr. Greenberg.
We have talked about this. Multiple levels, entities of
Government can establish a shutdown. We have seen that occur in
the pandemic. Is there any relationship--is there a cause and
effect here for those entities, therefore, because if there is
private pandemic insurance programs that they would be less
likely to lift the shutdown?
Mr. Greenberg. The moral hazard, it is a good debate among
all good-thinking people about this. The program, as we
envisioned it, would require three levels of Government to
determine whether coverage would be paid. The CDC would have to
declare, the Federal Government would have to declare, and then
the States themselves would have to declare a shutdown, so that
businesses could not make individual decisions and you restrict
and limit the moral hazard substantially.
Is it perfect and can it be refined? That is up for
discussion.
Senator Moran. I am pleased to know that it is part of the
discussion. Thank you. And nice to know that people of good
minds ask questions like that. Thank you.
Mr. Hartwig, prior to COVID-19, only one other health
emergency had been declared due to a pandemic, and that was the
Zika virus. At the same time, cyberthreats to American
consumers, as Mr. Greenberg mentioned in his response to
Senator Scott, they have grown in both frequency and in
severity. Would it be a better use of private capital to focus
on insuring against the increasing threat of cyberattacks?
Mr. Hartwig. I do not think that I am in a position to make
that determination for Mr. Greenberg or any other CEO in the
insurance industry. I think that they have their pulse on the
data. They understand the frequency of the losses they are
seeing. They understand the severity, in other words, the costs
of the losses they are seeing. And from that they are able to
develop a rate. And it is definitely true that there is
potentially some systemic nature to cyberrisk in the sense that
the internet connects us all, to some extent.
At the same time, I think that the industry has been
tiptoeing very slowly into the cybermarket, although the pace
of growth has certainly picked up, for about the last 20 years
or so, and we are learning by doing. But I think it would be
naive of us to think that here we are, 20 years maybe, 25 years
into the internet era to think we know all there is to know
with respect to cyberrisk. I think we are at the very, very tip
of the knowledge iceberg on this particular issue, and I think
we will likely experience massive cyberattacks in the future
that potentially produce significant insurance losses. But
presumably Chubb and others are very, very cautiously
underwriting this risk based on the data they have, with their
hundreds of thousands of customers right now, and believe that
they are pricing that product appropriately and there is
reinsurance available for those products in the world today.
So I do not think that they are overexposing themselves,
but I think that they are learning by doing, and they
understand this is a risk that businesses necessarily do need
to mitigate.
And, by the way, I do not want to get too far into the
weeds, but while you do hear a lot about enormous cyberattacks
and millions of dollars, potentially, being paid out, the
majority of attacks are of a much, much smaller nature,
affecting a small business here or a small business there, and
the losses tend to be fairly limited.
Senator Moran. Thank you. Let me talk to Mr. Gordon. Mr.
Gordon, during the course of this pandemic we have seen a
number of major events disrupted--college basketball, March
Madness tournaments, to the Summer Olympics in Tokyo. In many
cases, event cancellation has resembled business interruption,
with event organizers facing millions in losses when major
festivals and sporting events have been suddenly canceled or
postponed.
One notable exception that I am aware of, an entity that
did have coverage was Wimbledon tennis tournament, which paid
premiums to prepare for a pandemic for 20 years and was able to
collect a $141 million payout. What was unique about
Wimbledon's situation, and would it be possible to create a
national program for participants that emulate Wimbledon, and
do you think that business interruption coverage could feasibly
be offered if separated from event cancellation coverage?
Mr. Gordon. Thank you, Senator, and insurance did provide
some cancellation coverage insurance globally for very discrete
events, that included some pandemic risks, but subsequently
suffered losses that were many times the global premiums
collected. So our members have estimated that the global annual
event cancellation premiums may have been between $250 and $600
million from 2019 to 2020, whereas the losses were between $3.5
to $6.5 billion, and that number could grow significantly if
the Tokyo Summer Olympics are canceled. Because those event
cancellation losses were so great, most new coverage excludes
communicable diseases, both insurance and reinsurance, and even
the underlying market has temporarily contracted. It is unclear
to what extent those markets will return, which is why APCIA
has expressed support for addressing event cancellation in our
BCPP.
I would note, however, we have received a lot of tough
questions from Members of Congress about what events should
receive taxpayer support--Trade shows? Kennedy Center balls?
Sporting events? Political rallies? A lot of tough policy
questions, and APCIA is very happy to help work out the
mechanics with the Subcommittee, but we would need more
guidance from policymakers about your subsidization priorities
and which activities and losses the Federal Government wants to
protect.
Chairman Menendez. Thank you.
Senator Moran. Mr. Gordon, thank you. Mr. Chairman, thank
you.
Chairman Menendez. Thank you. Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. Mr. Chairman, I,
too, like IHOP, and I am conflicted between IHOP and Waffle
House, a spicy poblano omelet at Waffle House and the sausage,
cheese, and jalapeno omelet at IHOP.
Chairman Menendez. Come to New Jersey and I will take you
to Ms. Bayoh's IHOP.
Senator Tillis. But the reason I mentioned that----
Senator Scott. Is that an invitation for two?
Chairman Menendez. Absolutely.
Senator Tillis. ----both of those restaurants have
something in common. Both of them are about two miles from my
house. The IHOP, after the pandemic, has closed permanently.
The Waffle House has closed, and now they want to reopen but
they do not have employees to come back, so they have got a
``Closed, Now Hiring'' sign. I mean, that is real evidence of
the impact of the pandemic. Those were thriving restaurants
just a year-and-a-half ago.
Mr. Chair, I have to agree with you. Mr. Hartwig, I am
sympathetic to some of the things that you have said, but I see
us coming up with a solution that certainly not PRIA, because
PRIA is just basically TRIA with a few words substituted. It is
because I want insurance against future $6 trillion debt
payments. We have added $6 trillion, and Senator Menendez and
Senator Scott know that we actually did very well with the
Paycheck Protection Program. But it was by no means perfect,
and it is going to be subject to whatever the composition is of
Congress should we have another pandemic. And I want a more
systematic approach that not only helps businesses recover and
respond but also does not have the Federal Government carrying
risk.
Can you imagine, for example, if you do the reading that I
do on gain-of-function research for viruses, we may not be in a
50-year or 100-year cycle for pandemics anymore. We may very
well be in 10-year, 5-year cycles, should the next pandemic
actually be intentional. There are still questions about the
last pandemic.
So I think we have got to think more about how we have a
backstop ourselves in terms of trillions of dollars going out
the door every 5 or 10 years, with my grandchildren in place to
have to pay it back.
So, Mr. Greenberg, it is good to see you again. I wanted to
build on a question that Senator Moran asked. But, you know,
the working group that my staff has been involved in is more of
a parametric approach to how we would go about providing some
sort of a construct for pandemic risk insurance. Can you give
me an idea of what you think are the leading thoughts on
triggering events? And I also want to talk a little bit more
about--you were talking about three levels, at the Federal and
State level. One of the things I am concerned with is the
disparity of decisions that could be made by elected officials,
and how do you actually deal with that risk, you know, one that
is forward leaning, the other one--I could see vast differences
across our diverse and wonderful country.
So after you get through the metrics, tell me a little bit
about how do you manage that risk.
Mr. Greenberg. Senator, I do not have a perfect answer to
that, and I am not going to try to create one. But I am going
to return to one thing that I feel fundamentally, in a strong
way, and that is if we do not come up with a way of managing
pandemic by not having, as a health care response, not simply
shutting down the economy for extended periods of time, then we
are going to continue to have events of this size with this
kind of damage.
And, you know, frankly, I think it is a Government issue to
wrestle the social questions around enforceability nationwide,
and it is a State-versus-Federal question about masking, about
digitally tracing and isolating and how we deal with this
notion of individual rights and freedom in health crisis. I
would be much more disciplined about that and stricter about
that.
My God, you cannot decide what degrees you cook chicken at
because we have said that, you know, for health reasons it has
got to be cooked at 160 or 180 degrees. Well, that is not an
impact on your individual rights, and I think we have to come
to grips with that in pandemic to keep it smaller.
The moral hazard--look, under the parametric plan that we
have come up with, where it is both two Federal agencies and
then the State, there may be more clever ways than that to
reduce the moral hazard, but right now we think it is pretty
balanced, if you do something as well about national standards
around health response, the balance of the two together.
Senator Tillis. Mr. Chairman, may I ask Ms. Bayoh a
question?
Ms. Bayoh, are you there?
Ms. Bayoh. I am here.
Senator Tillis. Just a couple of questions. Did you apply
for and receive a Paycheck Protection loan?
Ms. Bayoh. Yes. The first run of Paycheck Protection I went
through, I think, three or four banks to find one that could
get me a home. And I think Paycheck Protection was great, but
it was a challenge, particularly to neighborhoods that I come
from.
Senator Tillis. I expected that answer, and to me it is
another reason why we have to come up with a systematic
approach. In my State of North Carolina, we handled hundreds of
cases of businesses that were trying to navigate the program
that we stood up in a matter of weeks, which is, again, we need
the leverage of the insurance industry to have one number to
call, one process to follow in order to do this on a more
systematic basis. Because the next time we do Paycheck
Protection, if we had to do it again, it would probably be
different. The numbers would be different. The choices would be
different. So we need to provide, I think, more certainty.
And the final thing--Mr. Chair, thank you for your
indulgence--is we also have to learn how the world has changed
and how the U.S. economy has changed, because a part of what we
have to expect from businesses are what are your resiliency
plans? If I go to back IHOP and Waffle House, they are dine-in
establishments, largely, with some takeout. Now I am seeing
different business models there.
The risks will be different because if the businesses, in
the same way that they are becoming more resilient with respect
to cyberattacks, which affect what you would ultimately offer
as a business product, we have also got to communicate what are
best practices, how can you better prepare for this business
disruption, because that, too, will ultimately reduce the risk
and the ultimate cost for another business disruption.
I have a lot more questions for you that I am not going to
ask, but we will submit some questions for the record, and we
look forward to continuing to participate in the working group.
Thank you for holding this hearing, Mr. Chair.
Chairman Menendez. Thank you, and thank you for your
thoughtful comments.
We are going to extend a little bit because since not as
many members appeared and we have a tremendous wealth of talent
in front of us that we want to take advantage of.
Let me first ask unanimous consent to submit letter for the
record with reference to the topic at hand. Without objection,
so ordered.
Chairman Menendez. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. I only have one
quick question. One of the things that Senator Moran was
leaning into that I think is very important is the ability to
collect premiums before an event and have the time to plan for
what could possibly happen, whether it is a decade or 20 years,
whatever that global pandemic risk looks like.
I know that my car insurance--and I like to, once again,
keep it as simple as possible--my car insurance, I pay premiums
and I certainly hope and pray that I never have to use those
premiums. And so I pay them for several years, and then if
there is an incident, you pay them out. And so when we think
about those numbers that I was mentioning earlier, we have $633
billion of premium coming in, $1 trillion a month claim, with a
tail, so covered by the Federal Government or some backstop,
there should be a way to collect enough premium, hopefully in
advance of an incident, in order to participate in the
conversation, where we are shifting responsibility from
taxpayers to policyholders who are making the right decision to
participate, hopefully far enough in advance to keep the
insurance companies in play.
Is that a fair, simple assessment of what we are hoping to
do, based on the backdrop and the tail coverage, Mr. Greenberg?
Mr. Greenberg. Senator, it is. That is a fair description,
and I would add just one more refinement to it. That is why you
start at a certain place of insurance company participation,
how much the industry will take, and let it grow over time so
that there is a balance that if, unfortunately, it happens
earlier, and you have not had a chance to collect that much,
OK, we have limited it. It is still a risk----
Senator Scott. Yes.
Mr. Greenberg. ----but we have limited it, to a degree.
That risk grows as we have had a longer period.
Senator Scott. Exactly. Sir?
Mr. Hartwig. I will just make one quick comment. You talked
about the need to take in an adequate amount of premium. Well,
to the extent that clearly rates would have to be much higher
in the future than they are today, to accommodate this sort of
risk, so the question is what would be the appropriate level of
subsidy that would have to come from the Government each and
every year? That subsidy would probably be an extraordinary
sum.
And to the extent that you allow the rate to reflect what
the market will bear, what the true actuarial risk is, to the
extent that that rises, the demand for the product will fall,
just like for any other products. And we see this in the
National Flood Insurance Program, for instances, to the extent
that the cost of flood insurance offered to the NFIP is going
up, we see take-up rates going down, despite people seeing
floods around them on a daily basis.
And so the unfortunate part--if we look at earthquake risk
in California, it has been, what, 25-some years since the last
major earthquake in California, and today we have only about 10
or 12 percent of homeowners actually with that coverage.
Senator Scott. Before we go to the final witness present
and my time runs out I do think that the Flood Insurance
Program is the reason why I raised the question in premiums
collected versus benefits paid out or claims paid out. We think
about the fact that in the flood insurance market we actually
have about three States carrying the overall load for the
entire nation. So whether it is Louisiana, Florida, and South
Carolina, $4 out of $10 dollars of premium only come from those
places. If we had a program where we had every single
policyholder paying some portion for an extended period of
time, those who decide they are going to have the insurance,
that could create a different bucket of resources, and you
would still have to limit the exposure, and the exposure to the
insurance industry would grow over time, based on the number of
years, go from the 2020 pandemic to hopefully the 2080
pandemic. I may or may not still be here then. Likely not.
Anyways, that is the kind of conversation that I think we
need to have in the second hearing that we are going to host,
because I hope that we have another one of these sometime later
this year.
I will give my last 45 seconds to the----
Mr. Gordon. Senator Scott, may I respond to your earlier
question as well? This is Robert Gordon, a virtual witness.
Senator Scott. Mr. Gordon, yes.
Mr. Gordon. If I may, great questions and certainly that is
why APCIA has supported creating Government programs to address
the pandemic like improving the PPP with the advantage of
hindsight.
But the Senators have indicated that they are hoping to
protect against $6 trillion in debt relief that was recently
provided. A data call last year by the National Association of
Insurance Commissioners found only $2.5 billion in annual
business interruption premiums compared to that $6 trillion
figure. The Geneva Association and APCIA have similar studies,
and found it would take over 150 years to collect enough
premiums to pay those losses. Even just adjusting the claims of
potentially tens of millions of businesses simultaneously would
make the cost prohibitive, even with some sort of backstop.
So this is on a scale, as Dr. Hartwig mentioned earlier,
not really conducive to the industry, and that is why the
insurance regulators almost all of the underwriters have said
this is not a well-matched risk, but we do support a Government
program addressing these problems.
Chairman Menendez. Thank you. We always support the
Governments solving the problem.
Mr. Greenberg, I saw you----
Senator Scott. Not always.
Chairman Menendez. Senator Scott corrected me. Not always.
But in any event, I find that those who are not in Government
are always looking for the Government to solve the problem.
But Mr. Greenberg, I saw you shaking your head before when
there was a discussion of flood insurance and whatnot, and I
have one or two other questions for you as well.
Mr. Greenberg. I wanted to offer a different mental model
than flood insurance. I would say crop insurance. Crop
insurance was created during the Great Depression, when the
drought was terrible--to keep bread under a buck a loaf. And it
was the idea to incent farmers and protect them so that they
could keep their farms open.
Over 60 percent, I think maybe it is closer to 80 percent,
of farmers buy crop insurance. The premium is actuarily
determined as far as the part that insurers keep. The
Government subsidizes the premiums so that farmers buy it
widely.
So I would offer a different model than simply flood
insurance, which I agree is a broken program.
Chairman Menendez. Ms. Bayoh, you responded to Senator
Tillis about your experience with PPP. I am not surprised. If
another pandemic hit, would you feel confident that Congress
would respond quickly and effectively to the needs of
businesses like yours?
Ms. Bayoh. So I think that is a two-part answer for that,
Senator Menendez. I think what I am really concerned about is
that not having anything in place disproportionately puts us at
the beck and call of uncertainty, right? When PPP came out,
unfortunately for me, the bank I was banking with did not
participate at the time in the PPP program, so I was literally
left at the mercy of some bank that I did not bank with, asking
around, ``Can you accept my PPP application?'' And we all know
the problems that black and brown community face when it came
to the Paycheck Protection Program. A lot of businesses, they
did not fit their mold. It was very difficult.
And despite the PPP, I know businesses that will not see
another year due to this pandemic, and what I think is that we
need assurance. We are not asking for help here. I think we are
asking for what we need. And our humanity, as business owners,
I hear the stories from my counterparts all of the time, the
cries, the loss of income, the loss of business, the loss of
generation of wealth. That is the thing that we live with, and
I hope that I am not sitting here, the next pandemic, hoping
for another PPP.
Chairman Menendez. Mr. Greenberg, let me ask you. The
professor suggested that the industry is tiptoeing into
cyberinsurance. Is that your experience?
Mr. Greenberg. No, it is not my experience. Cyber is maybe
the fastest-growing line of insurance today. Do not hold me
exactly to the numbers, but to give you a general sense,
cyberinsurance, you know, let us say 5 years ago, was maybe a
$1 billion market, and it is about a $5 billion market today,
in terms of premium. It is growing. It is growing rapidly.
Chairman Menendez. And part of what one can do in the
industry is determine what are the underwriting elements of any
insurance, so, therefore, further mitigate both the risk and
also the actions of the insured, by directing them in a certain
path. Is that a fair statement?
Mr. Greenberg. It is a fair statement, and cyber is a good
example of it. It is evolving quickly, and not to digress too
much but the risk environment is changing rapidly in cyber. It
is another discussion we could have. It is becoming far more
hostile. You see it visibly. We probably see it even more
visibly in terms of both frequency and severity of loss, and
where loss is coming from.
And at the same time, society is digitizing, so the
interconnection and the concentration of exposure is growing
rapidly. Insurers are learning quickly, and we are adjusting
both the kinds of coverages we give and the services we provide
to help incent that kind of behavior around risk management
that you are describing.
Chairman Menendez. One last question. One of the benefits
of a pandemic risk insurance program could be that it
incentivizes businesses to internalize some of the lessons that
we have learned over the past 18 months, for example, how to
practice social distancing, better hygiene practices, remote
work contingencies, changing business models to serve customers
in safer ways, and so on. And often these practices can benefit
not only society overall but it can mitigate the cost.
Mr. South, how does Marsh account for these benefits in
your proposal, and how do you look at premiums looked at, also
based on the risk level of the specific business?
Mr. South. Senator, I think it is a very good point. I
think, you know, if you listen to what Mr. Greenberg said, one,
you would leave the insurance industry with a portion of the
risk they can absorb. Second, you have got to charge a premium
for the bid that is retained that is reasonable for that, and
then the Government needs to decide on the subsidy for the tail
risk.
I think a critical element, as you said, is what
Governments and what businesses will learn about what worked
during the pandemic, what are the issues that you have to deal
with, from a risk management standpoint going forward, and make
sure that those four elements come together in the future. And
as people learn, as models become more sophisticated, as you
are able to predict which pandemics travel fast, which ones do
not, which ones are infectious, which prevents the measures you
can take, and there is this partnership between Government and
businesses where you are both figuring out when to lock down,
what pathogens are important, which ones you have to react to
immediately, and memorialize those and keep those, those risk
management techniques are typically what, over times, creates a
new market base, creates new technologies to mitigate risk.
And I think that is a fundamental part of it. You create a
vibrant business community, focused on risk management, and
bring that together, if you have something that will help sort
of mitigate a future pandemic, when it happens, in a better way
than just hoping and praying that you can write a check again.
Chairman Menendez. Mr. Landgraf, one last question. Would
your coalition support premiums based on risk level of a
specific business?
Mr. Landgraf. Thank you, Senator, and I wanted to echo the
most immediate remarks by Mr. South and Mr. Greenberg, that I
think the insurance industry has a really positive and
important role here to play that the surveys of our risk
managers and policyholders show that overwhelmingly they want
to work with the insurance industry to help shape those risks
and improve risk mitigation through an insurance program, not
just a Government loan program.
Would they support risk-based premiums? I think the answer
is yes, over time. In our proposal, we had proposed something
called an economic recovery period. It would be a pause on the
charge by the Government for the reinsurance, you know, for the
premium, for the backstop, but over time we would support
phasing that in. Certainly, under our proposal, as with TRIA,
the insurance industry, subject to State regulation of
insurance, would be free to price the risk that they retain
within the program, either on market terms or through State
rate regulation. We are not seeking to avoid that, but to pay
the insurance industry for that risk retention.
Chairman Menendez. Right. Well, seeing no other Members,
that concludes the questioning for today's hearing, examining
how to address pandemic risk. I would say I appreciate the
spirit in which several of you have come, in terms of thinking
about what role does the insurance industry play. As I have
told other industries at other times, just saying no and not
being part of the solution is not a particularly good strategy,
because what you will end up with is a legislative response
that you were not involved in effecting, and it may not be as
good and it may not be as effective as we would have if you all
participated in it. So I appreciate that.
Today's hearing is the Subcommittee's first step toward
preparing our economy for the next pandemic. I look forward to
working with all of you here today, as well as other
stakeholders not present, and my Senate colleagues on a path
forward. My staff may be reaching out to you to solicit more
detailed information and discuss next steps to tackle pandemic
risk and fortify our economy. I would appreciate your help and
your insights in that regard.
For Senators who wish to submit questions for the record,
those questions are due to the Committee by the close of
business Thursday, July 29. To all of the witnesses, that you
may get some of those questions, we certainly would appreciate
your response to it so that we can have a fully informed
record. And with the thanks of the Committee, this hearing is
adjourned.
[Whereupon, at 11:34 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN ROBERT MENENDEZ
This hearing of the Senate Subcommittee on Securities, Insurance,
and Investment will come to order. Thank you all for joining us.
This hearing is in a hybrid format. Our Members are in in-person,
but we will have witnesses testifying both in-person and by video. For
those joining remotely, a few reminders:
Once you start speaking, there will be a slight delay
before you are displayed on the screen.
To minimize background noise, please click the mute button
until it is your turn to speak or ask questions.
You should all have one box on your screens labeled
``clock'' that will show how much time is remaining.
If there is a technology issue, we will move to the next
witness until it is resolved.
Thanks to the Biden administration and the American Rescue Plan,
the country is well on its way to defeating COVID-19 and restoring the
promise of our economy.
We put shots in arms, money in pockets, and provided billions of
dollars in relief to hard-hit businesses. However, we still have a lot
of work to do. The pandemic has exacted a heavy toll, and we owe it to
the more than 600,000 mothers, fathers, sons and daughters lost to
COVID-19 to examine how we can better prepare ourselves for similar
challenges in the future.
I know that imagining another public health crisis of this
magnitude is an unpleasant exercise. However, in today's interconnected
world, the question of the next pandemic is not ``if,'' but ``when.''
This pandemic unleashed havoc throughout our economy. Across the
country, businesses suffered massive losses as a result of stay-at-home
orders and other containment measures necessary to slow the spread of
COVID-19. During the height of the pandemic, 74 percent of all small
businesses reported falling revenues from the previous week, \1\ and
small business ownership dropped by 22 percent. \2\
---------------------------------------------------------------------------
\1\ U.S. Census Bureau, Small Business Pulse Survey, June 24,
2021, at https://portal.census.gov/pulse/data/.
\2\ https://www.newyorkfed.org/medialibrary/media/smallbusiness/
DoubleJeopardy-COVID19andBlackOwnedBusinesses
---------------------------------------------------------------------------
In a State like New Jersey that was particularly hard hit at the
onset of this crisis, 92 percent of small businesses experienced
revenue losses and 41 percent temporarily closed. \3\ These losses were
particularly concentrated in minority communities and in certain
industries, such as restaurants and leisure and hospitality.
---------------------------------------------------------------------------
\3\ https://www.philadelphiafed.org/-/media/frbp/assets/community-
development/articles/sbcs-nj-insights.pdf
---------------------------------------------------------------------------
Most small businesses were not able to obtain relief through their
insurance policies.
The National Association of Insurance Commissioners found that of
the eight million businesses with commercial insurance policies that
included business interruption coverage, 83 percent also included a
clause excluding claims from viral contamination, disease, or pandemic.
Unsurprisingly, 82 percent of claims have been closed without payment.
\4\
---------------------------------------------------------------------------
\4\ National Association of Insurance Commissioners Letter to
Congress on Insuring Against a Pandemic: Challenges and Solutions for
Policyholders and Insurers, November 18, 2020, at https://
content.naic.org/sites/default/files/inline-files/.
---------------------------------------------------------------------------
Businesses instead relied on Federal programs. In New Jersey alone,
84 percent of small business owners applied to the Paycheck Protection
Program (PPP) and 58 percent applied for Economic Injury Disaster Loans
(EIDL).
These statistics suggest our national insurance system was ill-
prepared to cover the losses incurred by businesses in this crisis.
Therefore, it is the duty of Congress to analyze how we can better
insulate businesses and their workers from such losses in the future.
My hope is that this hearing will be the first of many discussions
on the lessons we can learn from the pandemic and how we can build a
stronger, better-prepared and more resilient economy.
A robust debate on this topic has already begun in the business and
insurance communities. Today will feature testimony on potential
frameworks to manage and mitigate financial losses that may arise from
future pandemics. One of the topics we will need to address is the
basic question of insurability, either by public or private entities,
of pandemic-related businesses losses. We must determine the extent to
which businesses, private insurance providers, and the Federal
Government are able to share the risk of losses due to a pandemic.
We will also examine a number of pandemic risk insurance proposals
and frameworks put forward by business coalitions and the insurance
industry in the wake of this crisis. Each presents different ideas on
how much risk is borne by the private sector versus the Federal
Government, and the approach to paying claims.
I look forward to hearing from today's witnesses about the merits
and challenges of the various plans. Your insights will help Congress
grapple with the challenge of better preparing our economy for future
pandemics and taking steps to ensure our businesses are not as
vulnerable to economic shocks as they were to COVID-19.
Thank you to all the witnesses for appearing, and I look forward to
your testimony. With that I recognize Ranking Member Scott and then
Chair Brown for their remarks.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
In early spring of last year, our country was in the midst of an
unprecedented economic boom as the progrowth policies put in place over
the previous 4 years fueled robust job creation and helped hard-working
Americans hold on to more of their own paychecks.
The U.S. unemployment rate hit the lowest level in half a century
(3.5 percent), average hourly earnings were on the rise, and the
overall poverty rate reached a historic low (10.5 percent).
The U.S. economy was the strongest it has ever been, and
strengthening every day.
No one could have foreseen the global pandemic that would change
all of that in a matter of weeks.
The onset of the COVID-19 emergency had a rapid and severe impact
on the physical and economic health of our country.
The early months of the crisis were a time of exceptional economic
hardship for many small businesses, families, and individuals.
In my home State of South Carolina, our thriving tourism and
hospitality industries were especially hard hit.
Fortunately, Congress acted quickly to pass the CARES Act, putting
much needed cash directly into the hands of American workers and
families, providing rapid relief to small businesses, and helping to
stabilize our markets and the economy.
The CARES Act specifically created the Paycheck Protection Program
(PPP) to provide struggling small businesses and their employees
financial assistance as they weathered pandemic-related temporary
closures or reduced service availability.
Congress chose the PPP as the appropriate approach to quickly get
Federal aid into the hands of small businesses, rather than attempting
to retroactively change business interruption (BI) insurance contracts
that do not cover pandemics and viruses--a choice I support
wholeheartedly.
Now, over a year removed from the early, frantic days of the COVID-
19 pandemic, Congress has the opportunity to learn from this experience
as we begin to consider what steps should be taken to address future
pandemic risk.
During this hearing, I look forward to hearing more about: the
insurability, either by public or private entities, of pandemic-related
businesses losses; pandemic risk insurance proposals and frameworks
that have been proposed in Congress or by private sector stakeholders;
the challenges for businesses, insurance carriers, taxpayers, and State
and Federal Governments associated with implementing any of these
approaches to pandemic risk insurance; and whether not implementing a
Federal pandemic risk insurance program in the United States would
present any long-term economic risks or affect the country's global
competitiveness.
I appreciate all of today's witnesses for joining the Subcommittee
this morning to examine this very important issue and look forward to
our discussions.
______
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
This is the first Securities, Insurance, and Investment
Subcommittee hearing--thank you Chairman Menendez and Ranking Member
Scott for holding this hearing and thanks to the witnesses for being
here today.
The COVID-19 pandemic has claimed the lives of more than 600,000
Americans. Although we have made great progress getting shots in arms,
we are experiencing surges in areas across the Nation that have low
uptakes in vaccination rates. It's important that we continue to
provide families with the resources they need to protect themselves and
their loved ones--both medical resources, like the vaccines that will
save their lives, and also economic resources, as the economy continues
to fully recover.
While we all hope to avoid--and must work to prevent--a future
pandemic, we do need to be prepared. I am glad this Subcommittee is
working in a bipartisan way to explore solutions to the economic
challenges a future pandemic would bring.
I've heard from small business owners who thought the business
interruption coverage included in their insurance policy would help
them navigate the pandemic. Then, their insurance companies told them
the complex forms that they signed didn't actually offer them the
protection they expected. And, insurers have pointed out that if those
policies covered the effects of the pandemic, the industry might have
collapsed.
I've also heard from organized labor that union members are losing
out on jobs, because studios are moving production overseas due to the
lack of a pandemic risk insurance solution.
And we know how hard this has been on the families across the
country that depend on those jobs to put food on the table and to pay
their mortgage and rent.
I look forward to working with my colleagues of both parties as we
continue to discuss this issue and come up with a solution to better
prepare our economy for the inevitability of a future pandemic.
______
PREPARED STATEMENT OF ADENAH BAYOH
IHOP Franchisee, President and CEO of Adenah Bayoh and Companies
July 22, 2021
Chairman Menendez, Ranking Member Scott, and Subcommittee Members:
Thank you for the invitation to testify on this critical issue from the
policyholder, small business owner perspective. I am a restaurant owner
several times over--an IHOP franchisee of 15 years, cofounder of
Cornbread Farm To Soul, founder of Urban Vegan and the President and
CEO of Adenah Bayoh and Companies. I am also a member of the National
Restaurant Association and the New Jersey Restaurant and Hospitality
Association, which have made finding a legislative solution to future
pandemic risks a key priority.
I am fortunate to have lived the American dream. At age 13, I
escaped the civil war in my native country of Liberia and immigrated to
the United States. I began my career as an entrepreneur at an early
age. After attending public high school in Newark, New Jersey, and
putting myself through college where I earned a degree in business
management, I secured a job in banking and began purchasing multifamily
homes as investments. Following the financial success of these
investments, I left my banking position to concentrate on building my
own business with a focus on transforming and empowering disadvantaged
communities.
Inspired by my grandmother, who owned a restaurant in Liberia, I
used the profits generated from my real estate investments to open an
IHOP in Irvington, New Jersey. When I cut the ribbon on my first IHOP
location at age 29, I was the youngest IHOP franchisee in the country.
By 2010, this location became the fastest growing in the Northeast
and it remains one of the top grossing in the region.
Pre-COVID, I employed 229 employees and am currently trying to
rebuild my workforce but, like other employers, I am facing labor
shortage challenges. Yet, I remain guided by a commitment to service
and continuous investment in my staff. I believe in training new hires
with valuable life skills that apply beyond their work in the
restaurant, extending throughout their lives and future careers.
In March 2014, I was honored as one of the TOP 50 Women in Business
by the publication NJBIZ and was the cover story in its March 24th
issue. In January 2015, I was appointed to the Federal Reserve Bank of
New York Advisory Council on Small Business and Agriculture. One of my
proudest accomplishments was in December 2015 when I was named to Ebony
Magazine's Power 100 list alongside such luminaries as former U.S.
Attorney General Loretta Lynch and Oscar winning actress Viola Davis.
Despite all of my hard-earned successes, everything came crashing
down in March of last year, when restaurants were among the first
businesses to shut down.
I had business interruption insurance with Chubb and Liberty
Mutual. It was to cover 12 months of actual loss of business income, if
something ever happened to my business and I needed to shut down. I
paid annually an average of $ 275,000.00 in insurance premiums.
When the pandemic hit, I immediately contacted my insurance
company. My broker advised me that viruses and pandemics were excluded
from insurance policies like mine and although I was ordered to close
most of my businesses by the Governor, there would be no relief from my
insurance company. I was shocked to find that my insurance coverage was
not there for me when I needed help the most. This harsh reality soon
set in. I began trying desperately to figure out how to cover my
financial obligations and, most importantly, how to take care of the
people who rely on me to feed their families. At the outset of the
crisis, I struggled to continue paying my employees from proceeds
generated by the business given the mandated shutdown and the fear that
gripped the dining public in those early days. Nevertheless, I made a
courageous decision for the first month of the statewide shutdown to
continue paying my employees despite the precarious situation. I agreed
to pay all my employees their average weekly pay whether they worked or
not. I did this to ensure that my staff, including single mothers,
could put food on the table. Although I was unable to fully resume
normal business operations, I felt a duty to help our valued team
members until Government programs could fill the gap. As an owner of
several restaurants, I was nearly bankrupted by this, but I have no
regrets.
Like so many others in the restaurant and foodservice industry, my
life's work was decimated by the COVID-19 pandemic. My restaurant sales
and jobs were devastated by this crisis. I had to make the hard
decision to close 3 newly built stores in Pennsylvania and lay off 16
persons due to these closures. I have seen some of my restaurants on
average lose 50 percent of their revenue at some point during this
pandemic. The hardest part of this crisis was not just seeing the
impact on my restaurants and my businesses but the impact within the
communities in which I operate. Yet, I continued to do my part. We gave
away almost 10,000 free pancakes, we fed essential workers, we gave
free lunch to school children and fed overnight nursing staff who were
unable to get dinner due to cafeteria shutdowns. The most heartfelt
part of all of this was seeing some of my employees volunteer to help
feed and assist the communities in which they live and work.
Mr. Chairman, notwithstanding the devastating impacts of the
pandemic, I remain optimistic and enthusiastic about our future
recovery and growth, but the road to recovery will be long and
complicated. The magnitude of the COVID-19 pandemic's financial and
social impacts has exposed significant shortcomings and vulnerabilities
in our country's preparedness to deal with catastrophic events of this
scale, which includes gaps in insurance protection for losses from
business interruption.
I agreed to participate in this hearing today because I understand
that Pandemic Risk Insurance is a viable solution that would cover
future pandemics to allow continuity in Main Street businesses
especially Black and Brown communities like mine. A program like this
should be enacted into law, as soon as possible, because we don't know
for certain when the next pandemic will come. We certainly didn't see
COVID-19 coming.
I would like to note that the National Restaurant Association, is a
member of the Business Continuity Coalition (BCC). The BCC is
advocating for the development of a public-private partnership, with
the right incentives for all parties, to mitigate the future economic
impact of pandemics. Such a Federal program would help businesses
obtain affordable insurance coverage for pandemics, modeled upon the
terrorism risk insurance program that Congress put in place after 9/11
when businesses could not obtain coverage for acts of terrorism.
This country needs a Pandemic Risk Insurance Program to ensure that
Main Street businesses and employees have certainty and continuity in
the ability to navigate the impact of a future pandemic. I defer to the
experts on the panel regarding the technicalities, but from a small
business owner's perspectiveany Federal backstop should support not
only nondamage business interruption coverage but also other pandemic
impacted lines of insurance, such as event cancellation, workers
compensation, and general and employment practices liability insurance.
These lines may need to be supported by a robust backstop even for a
recurrence of COVID-19. The time is now for solution.
Mr. Chairman and Ranking Member, thank you again for the
opportunity to testify. I am happy to answer any questions you or other
Members of the Committee may have.
______
PREPARED STATEMENT OF EVAN G. GREENBERG
Chairman and Chief Executive Officer, Chubb
July 22, 2021
About Chubb
Good morning Chairman Menendez, Ranking Member Scott, and Members
of the Subcommittee. I am Evan Greenberg, the Chairman and Chief
Executive Officer of Chubb. Thank you for inviting me to speak to you
today regarding pandemic risk and our perspective on ways to create a
public-private partnership that leverages the insurance industry's
existing infrastructure and includes risk sharing by the industry.
We are all deeply saddened by the devastating and deadly effect of
COVID-19; the toll in lives and the harm to the global economy has been
catastrophic. Thankfully, the vaccines are extraordinarily effective
and are the key to ultimately ending the pandemic, or better said,
controlling what is now an endemic. To continue the progress against
COVID-19, more must be done to rapidly increase global vaccine
distribution and overcome vaccine reluctance. Even as this battle
continues, we must take the lessons learned from this pandemic and act
now to protect people and their livelihoods from future pandemics.
There is much that we can do to protect lives, including stockpiling
PPE, implementing mask protocols and social distancing early on,
requiring widespread testing and tracing, and developing new treatment
protocols and medicines. There is also much that we can do to lessen
the economic blow by building the financial backstops now that can be
immediately triggered when economic activity is suddenly disrupted. To
this purpose, we believe that the insurance industry can play an
important role in partnership with the Federal Government to blunt the
economic impact of future pandemics by keeping businesses solvent and
people employed.
Chubb is the world's largest publicly traded property and casualty
insurer and the largest commercial insurer in the United States. With
operations in 54 countries and territories, Chubb provides commercial
and personal property and casualty insurance, personal accident and
supplemental health insurance, and reinsurance to a diverse group of
clients. Chubb has more than $192 billion in assets and wrote $41
billion of premiums in 2020. The U.S. accounts for approximately 60
percent of Chubb's premium. Chubb employs 31,000 people worldwide, with
approximately 15,000 of those employees in the 44 branches around the
United States. Chubb's core operating insurance companies maintain
financial strength ratings of AA from Standard & Poor's and A++ from
A.M. Best. Chubb Limited, the parent company of Chubb, is listed on the
New York Stock Exchange (NYSE: CB) and is a component of the S&P 500
index.
Before addressing how pandemic risk should be handled going
forward, I would like to take a moment to talk about Chubb's response
to the current pandemic. Throughout this challenging and heartbreaking
time, we at Chubb have worked diligently to address the needs and
concerns of our employees, customers, and community.
At the very beginning of the crisis, we instituted a no-layoff
policy to provide all our employees with peace of mind knowing their
jobs and benefits are secure during this time of uncertainty, and we
immediately established work-from-home protocols to keep our
colleagues--and our communities--safe. We are pleased to report that
all Chubb offices in the U.S. are now reopened on a flexible schedule
to accommodate each employee's individual circumstances, and with
appropriate practices in place to ensure health safety and comply with
applicable Federal, State, and local rules. Throughout the crisis, we
also have offered a series of programs to help employees with their
emotional well-being.
I am proud of the way our Chubb family has come through the crisis,
and proud of the way we have been able to continue to serve our
customers despite the challenges that we have all faced. We know many
of our policyholders are suffering and we are doing all we can to
support their needs. In addition to incurring $1.4 billion in COVID-19
claims-related charges, we have:
extended payment terms to commercial customers recognizing
cash flow pressures;
provided a premium credit for auto policyholders in the
U.S., recognizing their reduced driving exposures;
supported our U.S. small business clients with premium
reductions for their reduced exposures, i.e., payroll; and
supported our small commercial customers by providing
health care workers and first responders with gift cards
redeemable at our customers' businesses.
More broadly, Chubb continues to be a dedicated global citizen. At
the outset of the crisis, we committed $10 million to pandemic relief
efforts globally, including providing emergency medical equipment and
supplies to health care facilities in the very early days of the
pandemic, and helping the hungry and vulnerable through community food
banks. As the recovery phase continues, the Chubb Foundation has
committed an additional $2 million in funds to help those affected in
the U.S. and around the world, including $500,000 to provide emergency
medical equipment and supplies through the American India Foundation
(AIF). Chubb has also worked to facilitate global vaccine distribution
through a collaboration with the World Health Organization (WHO) and
Gavi, the Vaccine Alliance, to ensure that insurance coverage is
secured for a no-fault vaccine injury compensation program. Through
this support, the program offers eligible individuals in 92 lower-
income countries a fast, fair, and transparent process to receive
compensation for rare but serious adverse events associated with COVID-
19 vaccines distributed through COVAX, the global mechanism for
procurement and distribution of COVID-19 vaccines.
The Nature of Pandemic Risk
Some risks, like fender benders or a tree falling on a garage,
happen frequently but do not cause significant damage. Other risks are
relatively infrequent--like hurricane--but can cause greater damage. By
grouping many policyholders together, based on the likelihood and
severity of different types of risks, insurers can offer protection at
affordable and fair premiums. In this way, insurers pool risk on the
assumption that only a comparatively small number of policy holders
will suffer a loss in a given period. If insurers anticipated much
greater losses, then the premiums would be unaffordable either because
the frequency of events causing loss to many increased or because the
severity of loss increased. If you expected every house to burn down in
a given period, then the cost of insurance for each policyholder must
be at least the price of replacing their house.
Some risks are like every house burning down at the same time and
are simply too great to be insurable--the potential losses would
greatly exceed the financial wherewithal of individual insurers and the
entire industry given the industry's finite amount of capital. This is
what we face with pandemic risk--virtually unlimited risk on steroids.
Pandemics, unlike other catastrophes such as earthquakes, hurricanes,
floods and even terrorism are not limited to a specific geography, time
period, or risk class, but instead can affect entire economies, almost
every business, and most of the population at the same time, resulting
in losses so great that the event is uninsurable by the insurance
sector alone. The industry has not and could not charge an adequate
premium to cover such a risk, and more important, the industry does not
have the balance sheet capacity to do so. Our balance sheets are finite
and the risk, for all intents and purposes, is infinite. Insurance
regulators and the industry have recognized this fact and that is why
business interruption coverage against a pandemic has not been broadly
available.
While the industry could not take on the risk of a national or
global economic shutdown caused by a pandemic, there are a variety of
coverages that have responded to certain COVID-19 related claims where
such risk was contemplated under the policy and where insurers were
paid an appropriate risk adjusted premium. These claims cover losses
affecting individual lives such as workers compensation claims,
accident and health claims, and travel claims. They also include
certain specifically identified business interruption claims like
claims from the entertainment industry for event cancellation, such as
Broadway shows and film production. In addition, there are liability
claims for medical malpractice related to COVID-19 treatment, and
claims against directors and officers.
Insuring Future Pandemics Through a Public-Private Partnership
The COVID-19 pandemic has brought to the surface once again a
protection gap: massive economic losses that are not covered by any
existing Government program and that are not insurable in the private
market. Congress sought to fill the gap by enacting assistance programs
totaling trillions of dollars, including hundreds of billions of
dollars for small businesses. While these programs have been largely
successful, with businesses of all sizes securing loans and grants to
stay afloat, the ad hoc nature of these well-intended relief efforts is
not a formula for future success. It is not difficult to see how
quickly assembled Government programs could lead to inefficiencies,
delays, and uncertainty, as well as real and perceived unfairness in
distribution. One unfortunate result of the uncertainty of relief is
that small businesses cannot wait for help--they immediately lay off
workers, creating huge unemployment spikes. That is a critical
distinction between an ad-hoc Government response and the certainty of
an insurance program with known payouts and existing claims processes.
If the Government and society agree that we need to support
businesses, workers and the economy to stay afloat during future
pandemics, Chubb believes there may be a better way forward: (1) take
action now to reduce the scope of pandemic loss in the future and (2)
build a public-private partnership between the insurance industry and
the Federal Government to provide economic protection for this reduced
loss. In insurance parlance, we need to reduce the size of the tail
risk first and then provide an efficient mechanism for the Government
to backstop that risk, which is too big for the industry to assume on
its own. This encourages a private market to develop for pandemic
relief and business interruption insurance.
On reducing loss, we have learned much over the last 18 months
about how to prepare for and respond to pandemics. This knowledge has
been hard won--in hospital wards, in laboratories, in the trial and
error of Government and private efforts to battle the pandemic. We need
to take this knowledge and develop plans and resources to lessen the
health and economic costs of future pandemics. We can save lives and we
can limit the extended, widespread social and economic shutdowns we are
continuing to see in this pandemic by implementing the proven measures
that reduce contagion and improve health outcomes. Some of the measures
are now obvious--require masks at the first sign of pandemic threat;
institute testing and tracing to isolate carriers; stockpile sufficient
quantities of PPE and essential medical equipment so that our health
care providers can more efficiently and safely treat patients. Some
measures require ongoing private and Government support including the
development of more effective antiviral drugs and other therapeutics.
With effective leadership and resource commitment, we can be better
prepared for the next pandemic so that the limits on social and
economic activity will not be as extensive as they have been for COVID-
19. If we are successful in this way, then the economic loss may be
substantially lessened and the burden on Governments to provide
economic relief may be reduced.
Of course, even if we can substantially improve our pandemic
preparation and response, future pandemics will likely cause economic
losses far beyond the capacity of the insurance industry. However, the
industry can assume some exposure to pandemic risk and make coverage
more widely available if the Government limits our liability by
assuming the tail risk. Indeed, private-sector risk-taking brings an
added measure of discipline to pricing and claims management. Pandemic
risk can be priced, using the industry's insight, to determine a fair
premium for the exposure. The premium charge associated with the risk
incentivizes businesses and insurers to create better risk management
tools and strategies. In addition, insurance expertise can bring fraud
detection and additional mitigation. In short, Chubb strongly believes
that the insurance industry can play a more meaningful role in
providing future pandemic risk coverage that would protect U.S.
businesses small to large. We should not merely act as administrators
of a Government program as some have suggested--that diminishes us as
an industry and our role in risk mitigation.
A solution that commits insurance industry capital also provides an
opportunity for the insurance industry to increase over time the amount
of risk we take, as direct and secondary markets develop, thus helping
to reduce the Government's financial burden.
We note that other types of risk were once thought to be
uninsurable, but now, with the Government playing a role, private
coverage capacity has become available: terrorism, which was considered
uninsurable after 9/11, has seen the development of an insurance market
thanks to the Terrorism Risk Insurance Program; and even the National
Flood Insurance Program, for all its challenges, along with
improvements in technology, has helped spawn a small but growing
private flood insurance market.
Recognizing the importance of the insurance industry's risk-taking
role, Chubb has proposed a framework for a public-private partnership
to provide financial support for future pandemics. Our proposal would
provide greater certainty to businesses so that they can keep employees
on the payroll, pay their bills, and withstand the economic disruptions
like those caused by COVID-19. I am not going to go into the details of
our proposal today, but I would like to briefly address several
elements that we believe are essential for any successful public-
private pandemic partnership.
Any pandemic risk insurance program should consider the unique
needs of small businesses and how their exposure to a pandemic differs
from that of medium and large businesses. The fallout from the COVID-19
pandemic has shown us that pandemics do not impact all businesses
equally. When the economy shuts down, small businesses are generally at
much greater immediate financial risk than larger businesses and may
face immediate closure because they have more limited financial
resources, less liquidity, and less access to capital, credit, and
risk-management mechanisms than larger businesses.
The cornerstone of our pandemic risk insurance program, therefore,
recognizes the need for rapid liquidity for small businesses. The key
elements of such a program should include, in the first instance,
Government subsidization of the premium charged to small businesses to
ensure affordability and wide participation. In the event of a pandemic
that results in losses to small businesses, insurers would participate
in the first wave of losses up to a certain amount and the balance of
the insured loss would be paid by the Government. To accomplish this,
the insurance industry would receive an adequate risk adjusted rate for
its portion of the risk and the Government would absorb the cost of its
portion of the risk. Industry risk sharing provides insurers with an
appropriate risk-adjusted priced for exposing their capital, with the
Government assuming the extensive tail risk. Then when businesses shut
down and loss occurs in a pandemic, the insurance industry can provide
predictable, efficient and prompt payment of losses.
Although purchase of coverage by small businesses should not be
required, businesses that choose not to purchase coverage should not be
eligible for future Government pandemic assistance. Finally, to
facilitate quick claims payments, the coverage should be based on
predefined and packaged limits and triggers, and payments should be
made automatically based upon the triggering event without requiring
adjustment of individual claims--this will ensure help gets to small
businesses quickly.
For medium and large businesses, we believe that a market-oriented
approach is more appropriate and desirable. Medium and large businesses
generally have more financial resources and options than smaller
businesses; it makes sense for these businesses to pay an appropriate
risk adjusted price to insurers for their exposure and to the
Government for the use of the Federal balance sheet and assumption of
the tail risk. This program would be voluntary and would provide
partial coverage for pandemic losses for the businesses that chose to
participate.
This can be effectively and efficiently accomplished with a
partnership between the private sector and the Government where both
parties take risk. The Government could establish a reinsurance
facility solely to cover pandemic risk for medium and large businesses
that would accept risks at commercial terms at a fair, risk-adjusted
price. Private insurance companies that choose to sell such coverage
could write pandemic business interruption policies at market terms and
retain some portion of the risk, subject to their balance sheet
wherewithal, reinsuring the rest along with a premium payment to a
Federal reinsurance facility. The Government gets paid for the use of
its balance sheet.
Our proposed framework builds on these ideas, and addresses the
details, including program limits, policy limits, industry share,
claims payment, and distribution. It is a robust plan, fiscally
responsible and I would welcome the opportunity to discuss it with you
in more detail at the appropriate time.
Conclusion
In conclusion, we can be better prepared for the next pandemic by
acting now to limit the health and economic consequences of such a
catastrophe. We know what needs to be done to prevent the widespread
shutdowns that have had such devastating economic consequences. We also
know what can be done to provide prompt financial support to keep
businesses solvent and employees off the unemployment rolls. The
insurance industry cannot provide that support on its own, but as
outlined above, a public-private pandemic insurance program can do so.
Combining the insurance industry's risk insight and experience with the
Government's balance sheet capability to take on pandemic tail risk
provides the foundation for an affordable, efficient liquidity backstop
for small businesses and a market-based program for larger businesses.
There are a number of proposals that have been suggested by
policymakers, policyholder groups, and industry players--including
Chubb--to address the pandemic protection gap. The proposals differ in
important ways, but several of them include the essential elements of a
public-private partnership, industry risk-taking, and the needs of
small businesses. We hope these proposals encourage dialog and provide
ideas for addressing the devastating effects that future pandemics
could have on the lives and livelihoods of so many. I appreciate your
interest in our views, and I look forward to working with you and the
other stakeholders as your work on this critical issue continues.
______
PREPARED STATEMENT OF ROBERT HARTWIG
Professor of Insurance and Finance and Director of the Risk and
Uncertainty Management Center, University of South Carolina
July 22, 2021
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF L. CHARLES LANDGRAF
Arnold & Porter, on behalf of the Business Continuity Coalition
July 22, 2021
Chairman Menendez, Ranking Member Scott, and Members of the
Subcommittee, thank you for inviting me to testify today. My name is L.
Charles Landgraf. I am a Senior Counsel in the law firm of Arnold &
Porter in Washington, DC. I am appearing today on behalf of the
Business Continuity Coalition which we serve as counsel.
The Business Continuity Coalition (the ``Coalition'' or ``BCC'')
consists presently of 44 trade associations and major companies in
dozens of industries, a membership that represents most sectors of the
economy and more than 70 million workers, from health care and dining/
hospitality--the two largest employment sectors in the economy--to
manufacturing, construction, finance, real estate, media and film, live
entertainment, professional sports, and professional services, to name
some of the sectors represented by the Coalition. A full list of member
organizations as of this date appears at the end of this statement, but
the Coalition continues to expand and the most up-to-date list of
members can always be found at the BCC website here.
Executive Summary
BCC believes that a public-private backstop program for pandemic
risk insurance, similar to the Terrorism Risk Insurance Act (TRIA)
program enacted the year following the 9/11 attacks, is urgently need.
Attached to this statement is a detailed section-by-section description
of the BCC Recommended Proposal, which like TRIA consists of a general
``make-available'' requirement on insurers applicable to all relevant
lines of commercial property and casualty lines of insurance and, like
TRIA, an equally broad Federal reinsurance backstop. The BCC
Recommended Proposal includes important differences from TRIA in other
respects, chiefly to respond to insurers' expressed concerns about
aggregation of risk and also to ensure program continuity (along the
lines of the program administered by the Federal Crop Insurance
Corporation). Like the insurer-backed proposals being discussed today,
the BCC proposal would include a parametric \1\ revenue-replacement
benefit, which if widely purchased could be a more efficient, presold
alternative to last year's Paycheck Protection Program (PPP). But
again, the BCC proposal also would restore and solidify the pandemic
coverage in other commercial property and casualty lines of insurance
which are so crucial to a modern advanced economy. A program such as
outlined here is necessary to achieving a recovery--and growth beyond
recovery--that is as robust and inclusive as America deserves.
---------------------------------------------------------------------------
\1\ According to the National Association of Insurance
Commissioners (NAIC), ``[t]he term parametric insurance describes a
type of insurance contract that insures a policyholder against the
occurrence of a specific event by paying a set amount based on the
magnitude of the event, as opposed to the magnitude of the losses in a
traditional indemnity policy.''
---------------------------------------------------------------------------
An Acute, Urgent, and Continuing Problem
BCC was launched last year to develop a public/private program with
policymakers and stakeholders to respond to the insurance market
disruption resulting from the COVID-19 pandemic, in hopes of limiting
further economic damage that would result from continued unavailability
of pandemic or communicable disease coverage in commercial property and
casualty lines of insurance.
Closures and shutdowns caused by COVID-19 last year of course had
massive impacts on business activity and employment, not to mention all
of our lives in myriad ways. These closures/shutdowns brought immediate
focus on the ``business interruption'' insurance which many American
businesses--small, medium and large--had purchased to protect basic
operating revenue needs in times of disruption. It also brought into
relief the disagreement between insurers and policyholders over whether
a pandemic infection constituted ``physical damage'' necessary to
trigger coverage under many of those business interruption policies.
Other witnesses today will outline proposals for addressing that
basic gap in business interruption insurance coverage with Government
support. BCC is genuinely grateful for the substantial care and effort
that has been put into those insurance industry proposals for business
interruption coverage. Something similar to those offers is certainly
an essential element of any solution to the insurance crisis that the
economy is facing.
But I am here today to tell you that the problem--and therefore the
solution--is broader than just the business interruption line of
insurance. For one thing, many sectors of the economy operate in a
manner or patterns where a traditional business interruption policy--
which assumes a more or less continuous operation through a calendar
year--is not suitable. Many industries such as live entertainment,
broadcast, media and film production, conventions and trade association
meetings, all depend instead (or in addition to) upon various forms of
contingency insurance--including for example, event cancellation,
production package, essential elements, and key man insurance--rather
than a business interruption policy which, as we have all learned in
the past 16 months, is inextricably tied to an insured physical
location.
Event cancellation coverage is especially critical for the
nonprofit association community. In December 2020, the American Society
of Association Executives' (ASAE) Research Foundation surveyed
nonprofit association executives to examine the financial, programmatic
and organizational impact of COVID-19. Of note, 79 percent of
respondents reported no coverage available last year for event
cancellation and only 3 percent reported being able to secure future
coverage that includes communicable diseases.
Beyond the whole class of such contingency policies, all businesses
and organizations have other insurance needs besides business
interruption, such as general liability, employment practices
liability, professional indemnity (including medical professional
liability), excess liability and directors & officers (D&O) liability
insurance.
It would, for example, be ironic if any legislative response
provided no relief for the ``essential services'' that during last
year's lockdown continued to operate in food services, distribution,
health care, assisted living, transportation, manufacturing and so many
other sectors (that are represented in our Coalition). Their insurance
needs in lines of coverage other than business interruption were
greater, not less, than before. And that is true going forward. Only
the BCC proposal addresses these needs.
It is no exaggeration to say that the U.S. property and casualty
insurance industry has had a ``full allergic reaction'' to pandemic
risk or indeed all communicable disease risk. You will hear today that
the insurance industry did not insure the pandemic risk--based largely
on ``physical damage'' limitation in business interruption policies.
But those other lines of insurance that we just mentioned often did not
exclude infection disease from their coverage. It is only since the
onset of the COVID-19 pandemic that the U.S. insurance industry has
moved--almost universally, it seems--to exclude pandemic or infectious
disease from coverage in these other commercial insurance policies. The
insurance sector's reaction resembles their immediate reaction to
exclude terrorism across the board following the September 11th
terrorist attacks.
Widespread Withdrawal and Unavailability of Coverage--The RIMS and NRA
Surveys
We are unaware of any systematic review by either the National
Association of Insurance Commissioners (NAIC) or the Treasury
Department's Federal Insurance Office (FIO) to quantify or catalogue
the apparently pervasive imposition of pandemic exclusions by insurers.
\2\ However, we do have solid buyer-side evidence on the state of the
market.
---------------------------------------------------------------------------
\2\ At the September 29th meeting of the Treasury Department's
Federal Advisory Committee on Insurance (FACI), an insurance industry
expert testified that insurers had begun during 2020 to seek approval
from State regulators for ``near-absolute communicable disease
exclusions'' but that ``many of those filings'' were ``not being
approved'' by State regulators. See presentation of Robert P. Hartwig
to Federal Advisory Committee on Insurance, September 29, 2020,
particularly slide 19 (accessed July 15, 2021, at https://
home.treasury.gov/system/files/311/FACI-Presentation-Hartwig-9-20.pdf).
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The Risk Management Society, or RIMS, the leading global
professional society of risk managers and corporate insurance buyers--
RIMS is in our BCC coalition--has a membership of over 10,000 risk
management professionals and represents more than 3,500 industrial,
service, nonprofit, charitable, and Government entities throughout the
world. At year-end, RIMS conducted a survey of its U.S. membership to
measure the impact of the pandemic on the insurance market for
commercial lines of insurance. Some key take-aways from that survey:
Survey represents viewpoints from all sectors of the U.S.
economy
Insurers generally require physical damage to trigger
business interruption (BI) insurance--a difficult threshold for
pandemic losses; BI claims have been generally denied or
limited
98 percent of risk managers say that pandemic BI coverage
is now unavailable in the marketplace
Pandemics also are excluded or restricted on most other
lines of property-casualty insurance
Insurance premiums in most commercial lines continue to
significantly rise
In the few instances and lines where pandemic coverage
might be available, cost would be prohibitive without
Government support
Almost 80 percent of risk managers are interested in a
Government-supported product for pandemic insurance that meets
the needs of both small and large businesses
Over 90 percent would prefer to purchase pandemic insurance
through their broker or agent
COVID-19 has changed business risk profiles, particularly
with employer, operational, financial, cyber, and supply chain
risks
Even more recently, the National Restaurant Association (NRA)
conducted a survey of 1,500 restaurant operators April 1 to 9, 2021, to
assess the usage and availability of business interruption (BI)
insurance in particular in the restaurant industry. A majority of
restaurant operators continue to buy BI insurance (to answer the
question would risk be sufficiently spread) but only one percent (1
percent) of restaurant operators report being able to find pandemic
insurance coverage since March 2020. Ninety-one percent (91 percent) of
operators say they have not found pandemic coverage since March 2020 (8
percent were not sure).
Similar to the RIMS findings, nearly 8 in 10 restaurant operators
in the NRA survey say they would be interested in a Government-
supported insurance product for pandemic-related business interruption.
In an open-ended question in this survey (which focused on BI), new
pandemic or communicable disease exclusions to general liability and
other business owner package (BOP) policies were frequently cited as a
continuing problem.
Illustrative Sector--Impact of Pandemic and Insurance Unavailability on
U.S. Feature Film Production
To take another example of industry impact from the lack of
insurance, consider the production of films in the United States.
Feature film production in the United States increased steadily over
the years 2016-2019. Over those 4 years, an average of 651 feature
films were completed annually in the U.S. with the total reaching 681
and 676 in 2018 and 2019 respectively. In 2020, the bottom fell out for
U.S. film producers with just 302 films completed and the production of
an estimated 393 films was halted, delayed until 2021 or later, or
moved outside of the United States.
Most States allowed film production to resume in mid-2020 (subject
to strict safety requirements). However, since March 2020, customary
insurance coverage for losses from communicable diseases during
production no longer is offered; multimillion dollar productions may be
halted completely if a key cast member falls ill. Without that
insurance coverage, independent producers--responsible for 70 percent
of U.S. feature film production--struggle to obtain adequate production
financing. Major studios face similar difficult investment decisions as
their long term insurers and reinsurers demand the same exclusions.
This factor contributes significantly to the industry's delayed return
to full speed. To put it bluntly--``no insurance, no financing.'' Other
countries have recognized this and have acted promptly. Leading
countries which represent alternative production locations created
pandemic gap funding to offset insurance exclusions as well as other
industry support programs, and have successfully attracted many
productions that were previously scheduled for U.S. locations. Thus,
many of the film productions mentioned above as deferred or delayed may
have been permanently lost to the United States. Both the Motion
Picture Association and the Independent Film & Television Association
are members of BCC and support the BCC legislative proposal.
What Is Needed
We are not unsympathetic to the insurance sector's concerns about
aggregation of risk, although there has been no public evidence of
widespread insurance claims losses in any lines other than business
interruption (mostly denied anyway) and perhaps event cancellation, nor
any solvency concerns reported by rating agencies arising from the
exposure the industry did hold before moving to prospective exclusions
last year. We also understand that there has been a tightening of terms
in global reinsurance markets--that's a factor but not an answer.
Today, pandemic risk is probably the largest unhedged risk exposure
in the U.S. economy. Commercial insurance is an important component to
an efficient and vibrant advanced economy. Indeed, businesses often
distinguish between developed and less developed economies globally by
contrasting the degree to which the latter protect against risk through
insurance risk-shifting mechanisms (policymakers' so-called
``protection gap'').
Leaving this massive risk unhedged in response to the first
significant event in a century should not and does not satisfy anyone,
including an insurance sector that wants to remain relevant. A
precedent for Government involvement in insurance markets exists for a
broad range of risks where private markets fail to provide the economy
with the coverage it needs. These include terrorism (TRIA), flood
(NFIP), and crop risk (FCIC)--as well as other less immediate examples
such as----
War (enemy attack) risk (e.g., War Damage Corporation
during World War II);
Current aviation and maritime war risk programs;
Nuclear liability risk for commercial power production
(e.g., Price-Anderson Act); and
Political risk insurance for U.S. direct foreign investment
(e.g., U.S. International Development Finance Corporation
(DFC)).
In fact, the program established by the Terrorism Risk Insurance
Act (TRIA), enacted the year following the 9/11 attacks, represents an
effective public-private partnership model that could be adapted for
pandemic risk. Based on the economic challenges posed by the current
pandemic, a public-private backstop program--similar to TRIA--is
urgently needed for pandemic risk to help many sectors of the economy
recover and move forward.
All of the impacted lines of insurance, not just business
interruption, need to be supported with both a ``make-available''
mandate and a robust Federal backstop for the private insurers making
the insurance available. As the recent study by the RAND Corporation
recognizes, this component of the BCC proposal, which expands coverage
beyond the revenue replacement to address various additional costs or
liabilities that firms could face during a pandemic, is ``potentially
an important part of overall strategy to increase business resilience
to pandemic risk.'' \3\ During at least a 5-year economic recovery
period (subject to reset if the pandemic recurs), the Federal backstop
should be provided without charge (as is the case with TRIA) to ensure
affordability and maximum take-up, and the economic resiliency that
will foster.
---------------------------------------------------------------------------
\3\ Improving the Availability and Affordability of Pandemic Risk
Insurance: Projected Performance of Proposed Programs, by Lloyd Dixon
and Jamie Morikawa, The RAND Corporation (June 2021), at p. 17.
---------------------------------------------------------------------------
As recognized by the proposals currently offered today, the
business interruption line of insurance needs a special rule given the
particular gap exposed by the COVID-19 crisis. That is, the insurance
product needs to be both for non-physical-damage business interruption
(NDBI) \4\ and provided on a parametric basis, tailored to meet
specialized industry needs, which may be the only way to ensure
widespread, rapid delivery of assistance to America's businesses in
future pandemic crises. Liquidity to meet these rapid pay-outs should
be guaranteed. Insurers can be given an option to satisfy their
availability duty by supporting a joint underwriting facility which
would itself have a Federal backstop. Maximum utilization of global
reinsurance capacity and capital markets should also be encouraged.
Long-term program continuity is paramount given the time horizon needed
for financing this risk.
---------------------------------------------------------------------------
\4\ As a general matter, standard business interruption policies
include a condition of coverage that suspension of business ``must be
caused by direct physical loss or damage to property'' at the insured
premises. While the exact extent of ``direct physical loss'' as it
relates to COVID-19 is the subject of litigation, any physical impact
caused by the virus has not typically been sufficient to sustain a
claim in many jurisdictions.
---------------------------------------------------------------------------
Recommendations for Program Features
There is more detail in the attached section-by-section description
of the BCC Recommended Proposal, but conceptually the Business
Continuity Coalition urges the design of any pandemic risk insurance
program adhere to the following principles:
1. Scope: Any Federal backstop should support not only NDBI coverage
but also other pandemic impacted lines of insurance, such as
event cancellation, workers compensation, production or cast
insurance (for film and TV productions), and general and
employment practices liability insurance. These lines may need
to be supported by a robust backstop even for a recurrence of
COVID-19.
2. Private Insurer Utilization: Insurers should be included in any
pandemic insurance program to involve a number of current
industry advantages: (1) determine appropriate premiums to
reduce taxpayer outlays; (2) use existing claims-paying
infrastructure to pay claims; and (3) leverage insurer
expertise in risk mitigation to help businesses understand how
they can reduce pandemic risk, comply with imposed
requirements, and get their businesses up and running
expeditiously.
3. Availability: Eligible insurers should be required either to
share some portion of the risk in the primary NDBI coverage
layer or to support other covered lines of insurance as a
condition of being permitted to sell any Government-supported
NDBI coverage. Any pandemic program must properly balance the
need to ensure participation with the reality that insurers
cannot take on too much uncertain exposure.
4. Affordability: Premiums for the program should not aim to cover
full program costs. During an initial economic recovery period,
the backstop should be without premium, after which the
Government should charge at least some premium for the risk it
bears, but policymakers should not expect premiums to cover the
full cost of the program. Premium levels should be set to
result in widespread take-up. Cost recovery should be premised
on 50+ years.
5. Solution Must Meet Needs of Businesses of All Sizes: TRIA should
be the template for both availability and backstop, although
there are important differences to the pandemic peril that must
be reflected in final design. However, the NDBI benefit and the
general availability requirements should avoid an arbitrary
headcount cliff (e.g., 500 employees), just as the backstop
should avoid ``deductibles'' or coshares tied to volume rather
than risk exposure.
6. Rapid Claims Payment/Minimum Transaction Costs: Any primary NDBI
program should be structured as parametric coverage, which
would be triggered by defined external conditions (i.e.,
national health declaration+State/local action affecting
specified business categories) without recourse to usual proof-
of-loss; although use of proceeds might be audited. A Federal
Reserve liquidity facility should be authorized to ensure rapid
pay-outs.
7. Pooling Alternative for Offer of NDBI Coverage: Insurers that do
not wish to underwrite the primary NDBI coverage directly
should be given the option to support a joint underwriting
facility for that coverage which would also enjoy the Federal
backstop support.
8. Stop-Loss As Well As Quota-Share Protection: Federal reinsurance
protection for both NDBI primary program and for other covered
lines should be offered, on an optional paid basis, in the form
of stop-loss protection in addition to the coshare element,
given the potentially extreme cumulative risk of pandemic
losses.
9. Utilization of Reinsurance and Capital Markets: The Federal
program should, like NFIP, be encouraged to foster development
and use of private reinsurance markets as well as capital
markets' alternative risk-transfer mechanism to further reduce
or protect taxpayer exposure.
10. Continuity: A Federal pandemic risk insurance program should be
administered by a Federal entity housed within the Department
of Treasury with continuous existence, such as the World War
II-era WDC (later wound-down) or the Federal Crop Insurance
Corporation.
Conclusion
On behalf of the Business Continuity Coalition and its members, I
am grateful for the opportunity to testify and look forward to
answering any questions that the Subcommittee may have regarding this
testimony or the BCC Recommended Proposal. We stand ready to assist
this Subcommittee and all Members of Congress and the Administration in
developing a pandemic risk insurance program.
We urge Congress to move expeditiously to pass bipartisan
legislation that creates a public-private insurance solution consistent
with the principles offered above to share the financial risk of losses
related to pandemics. This urgent task is an essential precondition to
the prompt recovery of this nation's economy, and going forward will
help protect jobs and reduce economic damage from further pandemics.
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PREPARED STATEMENT OF MARTIN SOUTH
President, United States and Canada Division, Marsh
July 22, 2021
Subcommittee Chairman Menendez, Ranking Member Scott, and Members
of the Senate Banking Committee, my name is Martin South and I am
President of Marsh's United States and Canada Division. We have the
privilege of providing insurance brokerage and advisory services to
over 168,000 businesses, nonprofit organizations, and public entities
in the United States and Canada and being the insurance brokerage and
risk advisory business of Marsh McLennan. Thank you for the opportunity
to appear before you today to share Marsh McLennan's unique perspective
on the need for a public-private partnership to insure pandemic risk.
As the world's leading professional services firm in the areas of
risk, strategy, and people, Marsh McLennan has expertise in pandemic
risk, dating back before COVID-19. We have a longstanding involvement
with the World Economic Forum's annual Global Risks Report, which has
long warned of the likelihood and potentially high impact of a global
pandemic. In 2017, our company helped the World Bank structure the
first-ever pandemic risk bonds. In 2018, Marsh developed an innovative
insurance product, called PathogenRX, to provide pandemic business
interruption coverage for key industries including aviation,
construction, gaming, hospitality, retail, and tourism. In addition to
helping clients through the current pandemic, we are also collaborating
with international organizations to help mitigate the risk from
vaccination programs for lower income countries and regions.
The COVID-19 pandemic has affected every one of us, personally and
professionally. And while the pandemic is first and foremost a human
tragedy, we are deeply concerned about its impact on the global economy
and on our clients. Helping clients manage risk is our core business,
and today we are here to give voice to them. I'd like to emphasize that
point: Our role as an insurance broker is, first and foremost, to be an
advocate for policyholders, our clients.
Pandemics are by definition global, which means that clients and
insurers cannot diversify against them in the way that they might with
catastrophe risks that are local or regional. And the stakes for
policyholders regarding pandemic risk are high--this includes
businesses of all sizes and in all sectors, educational institutions,
nonprofit organizations, public entities, and more.
Section One: A Global Perspective
With about 76,000 colleagues in over 130 countries, we bring to
these discussions a global perspective from key economic sectors,
including higher education, hospitality, health care, and energy, to
name a few. Our specialists' professional knowledge of these
industries, backed by Marsh McLennan's data, can be leveraged to help
define new solutions for emerging and systemic risks.
The pandemic has reversed much of the economic progress made
globally following the 2008 financial crisis.
Recent estimates from the International Monetary Fund (IMF) show
that, in 2020, GDP fell by 3.3 percent globally and 3.5 percent in the
United States. The IMF projects that growth will rebound in 2021 and
2022. Still, output in many countries will remain below pre-COVID-19
projections into late 2022, according to the Organization for Economic
Cooperation and Development (OECD). This year, Marsh cosponsored with
the OECD a conference that addressed the challenges and solutions
regarding insurability of pandemic risk, and the potential role of
public-private partnerships. A report based on the conference is
included in our written remarks today.
Examining Frameworks To Address Future Pandemic Risk
According to the World Bank, the pandemic has pushed more than 100
million people into extreme poverty, and the number of people facing
food insecurity has more than doubled. Three decades of progress
against poverty are gone.
As the largest global insurance broker, our work with policyholders
and insurers gives us a unique perspective into the role of insurance
in a pandemic solution. Through the course of the COVID-19 pandemic, we
have been engaged in discussions with about 40 Governments globally.
There is clear interest in many regions for Government involvement
in solutions at the country, or even regional, level. This is
especially the case in Europe, for example in France, Germany, and the
U.K. The European Commission is considering the feasibility of an EU-
level solution. However, many countries are still grappling with third
and fourth waves of COVID-19, which has meant that even some ongoing
projects around establishing public-private partnerships have been put
on hold until the pandemic recedes. That said, we expect conversations
to continue in the near future, with support from many policyholder
groups, insurers, and reinsurers to find a long-term solution.
Many Governments--including in the U.S.--have offered unprecedented
financial support to businesses and their employees through wage
subsidies, tax deferrals, and guarantees. But it has come at a heavy
cost. By the end of 2020, debt-to-GDP ratios in OECD countries will
have risen approximately 20 percent since 2019--in many countries,
reaching the highest debt levels in decades.
Moreover, despite this assistance, the cumulative effects of
Government lockdowns, social distancing requirements, and changes in
consumer behavior have led to significant declines in revenue for
businesses across multiple sectors. For some industries, the pandemic
will have long-term implications.
Marsh serves clients of all sizes, including thousands of small and
medium-sized enterprises. Policyholders from these smaller businesses
have been heavily impacted by COVID-19 and they're vocal about the need
for a long-term solution.
Section Two: Role of Insurance
Insurance plays a vital role in the U.S. and global economies;
without it businesses of all sizes, across industries, would be unable
to start new ventures, hire new employees, or manage risk and grow to
their full potential. The pandemic has created recovery and resilience
challenges for businesses, Governments, and insurers--issues that must
be addressed to effectively manage a future pandemic. On the insurance
side, we've seen over the last year that property and liability
policies are severely limited in their ability to respond to pandemic-
related losses.
Commercial insurance coverage typically responds to losses caused
by natural catastrophes, such as earthquakes and hurricanes, and a
range of business risks, from employee injuries to product liability
and more. Although pandemics have occurred before, the economic impact
of COVID-19 has been of a different magnitude, in part due to how
interconnected people, businesses, and economies have become in the
past few decades.
Examining Frameworks To Address Future Pandemic Risk
These interconnections facilitated the rapid, global spread of the
virus in a relatively short time. And that, in turn, led Governments
and businesses alike to take actions to slow the spread. The ripple
effects of doing so cascaded throughout companies, supply chains, and
the global economy.
While some specialty insurance policies purchased before 2020 may
include coverage for pandemic risk, most policies do not explicitly
provide such coverage. Insurers, generally, hold the position that
property, casualty, and other insurance policies are designed to cover
losses suffered by individual insureds, but not for the aggregate
economic impacts from a pandemic, such as extended lockdowns of large
communities or entire countries.
Through the end of the second quarter of 2021--about 16 months
since the World Health Organization declared COVID-19 a pandemic--Marsh
had received tens of thousands of pandemic-related claims notifications
from clients around the world, including in the following coverage
areas:
Property and business interruption account for the majority
of claims notifications with most in the U.K. and Ireland.
Workers' compensation accounts for the second largest
number of claims mostly from the U.S. and Continental Europe.
Casualty, apart from workers' compensation.
Travel/personal accident notifications predominantly from
the U.K. and Ireland.
Financial and professional lines claims were the lowest
type of claim submitted.
Section Three: Impact on the Availability and Affordability of
Insurance
The magnitude of global economic losses, the difficulty in
predicting what actions Governments will take to contain infectious
disease, and the potential for rapid, drastic changes in consumer
demand make pandemic risk impossible for insurers and reinsurers to
assume by themselves.
As you will see in the next infographic based on Marsh's data,
COVID-19 has had a significant effect on the commercial markets (see
Figure 1). Many insurers are now broadly excluding coverage for
pandemic risk from their policies, and they're generally expected to
continue doing so in the future.
But they have been paying out claims throughout the pandemic.
Recent analysis by Artemis notes that COVID-19 losses and IBNR reserves
reported by major insurance and reinsurance companies have risen
significantly during the first quarter of 2021, with the total pandemic
loss reported now nearing $38 billion.
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Let me spend a few minutes looking at specific coverage areas and
the impact the pandemic has had on them.
Property/Business Interruption
Perhaps the most contentious area of insurance related to the
pandemic involves business interruption coverage, or BI coverage. This
is typically one of the greatest areas of need for policyholders in a
disaster. Put simply, this is the coverage that policyholders seek from
their property insurance for financial losses incurred due to a natural
disaster or a catastrophe such as a fire, a hurricane, or an
earthquake.
Generally, property insurance policies are triggered by insured
physical loss or damage. Since the pandemic began, many companies have
filed first-party property and BI claims--most notably, due to business
interruption caused by the action of a civil authority. Policyholders
have argued that their BI policy language should respond to shutdowns
and closures as mandated by several States and municipalities in the
U.S., and other governmental authorities elsewhere.
A growing number of such claims are now the subject of litigation
in various courts and countries. Through early June, approximately
1,500 COVID-19 coverage lawsuits were pending in U.S. State and Federal
courts, according to a Marsh review of several sources, including the
University of Pennsylvania's Covid Coverage Litigation Tracker.
To date, the results of these claims filings have varied:
A relatively small number of claims--typically submitted by
companies seeking recovery under specific sublimited coverage
extensions--have been adjusted and paid.
In some cases, insurers have issued reservation of rights
letters, made requests for information to aid in their
investigations, and proceeded with the measurement of claims.
In other cases, insurers have denied claims due to absence
of a physical damage trigger and the invocation of pollution/
contamination and virus exclusions and other policy language.
General Liability and Umbrella/Excess
To date, general liability (GL) and umbrella/excess claims related
to the pandemic--for example, alleging that a customer, client, or
other third party was exposed to COVID-19 on an insured company's
premises--have not been prevalent. In large part, this is due to the
difficulty in definitively proving such exposure and that the company's
negligence contributed to it.
That said, insurers have expressed some concern that casualty
claims could develop in the future. Depending on the jurisdiction and
the details of how a specific policy is written, litigation could
potentially be filed as much as 3 years after the alleged exposure.
As a result, insurers have sought to add COVID-19 or communicable
disease exclusions to their policies, particularly for insureds in
hospitality and other select industries. In some industries--for
example, restaurants--policyholders have been concerned that language
proposed by insurers has been overly broad. They worry that it could be
interpreted as restricting essential coverage for foodborne illnesses
and other perils that would not have the widespread impact of a
pandemic or epidemic. Marsh has generally made progress in amending
such language.
Examining Frameworks To Address Future Pandemic Risk
Workers' Compensation
In March 2020, as the coronavirus was rapidly spreading, many
insurers were concerned about its potential impact on workers'
compensation.
More than a year into the pandemic, these initial worries have
proven to be unfounded. The reality is that the average COVID-19 claim
is for a lower amount than the typical workers' compensation claim.
Moreover, COVID-19 claims have generally been clustered in a handful of
industries, such as health care and food and beverage manufacturing.
The pandemic highlights how difficult it can be to determine
compensability amid a public health crisis--mainly because individuals
can be exposed both in the workplace and outside of it.
Amid this challenging environment, a number of States have taken
action. As of early June, 24 States, along with the District of
Columbia and Puerto Rico, have introduced laws and regulations
dictating how workers' compensation coverage will respond to COVID-19
cases.
Workers' compensation capacity may be limited going forward for
some types of employers, such as health care organizations and first
responders. Employers in industries where employees often work in close
quarters--for example, food and beverage manufacturing--may also face
challenges.
Event Cancellation
Capacity for event cancellation insurance continues to decline. By
our estimates, capacity has fallen more than 30 percent compared to
before the pandemic. It appears that insurance market capacity will not
return to prepandemic levels anytime soon.
Pricing for coverage has doubled or even tripled for some event
cancellation buyers, while deductibles have increased by as much as 400
percent depending on the nature and location of the events to be
insured.
Moreover, while communicable disease coverage was generally
available--and affordable--before the pandemic, it is now widely
unavailable and is expected to be extremely difficult to include in
event cancellation policies going forward.
Management Liability
COVID-19 has compounded a number of challenges that were already
mounting before the pandemic in directors and officers liability,
commonly known as D&O, and in employment practices liability, or EPL.
Financial pressures on insurers have been exacerbated by the pandemic,
leading to significant increases in pricing over the last 15 months.
This is particularly the case for D&O, which has seen a 15 percent
or higher increase, on average, in pricing since the pandemic began. In
addition, many insurers are narrowing coverage terms.
Examining Frameworks To Address Future Pandemic Risk
As of early July, workers had filed nearly 2,800 COVID-19-related
employment litigation suits in U.S. Federal and State courts, according
to Fisher Phillips' COVID-19 Employment Litigation Tracker. Nearly a
quarter of these have targeted health care entities.
To date, however, pandemic-related restrictions on D&O and EPL
coverage have not been commonplace. Still, insurers are scrutinizing
their risks and probing prospective insureds about their responses to
COVID-19.
Section Four: Public-Private Partnership
The complex nature of pandemic risk means that we need strong,
national pandemic management. This requires insurers, backed by the
Federal Government, to write pandemic insurance policies and brokers to
contribute our risk knowledge and infrastructure. Widespread pandemic
coverage would see the insurance sector play an integral role in
preparedness and resiliency ahead of future outbreaks.
Marsh McLennan has supported the development of numerous global
public-private partnerships, so we have firsthand knowledge about how
private capital can lead to smarter and better long-term outcomes when
incorporated into a solution. Ultimately, we want to support the
Committee in its quest to develop a workable solution for all
policyholders.
The key to building a more proactive and agile response to the next
pandemic will be an insurance and risk management partnership that
helps facilitate coverage, aligns the needs of insurance buyers and
insurers, and incentivizes preparedness, mitigation, and resilience.
Recent history provides examples of just how this has been
accomplished in other areas. A range of risk-pooling models--from pure
private partnerships to State-financed funds for noninsurable risks--
can be used to address difficult risks (see Figure 2).
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That said, at Marsh McLennan, we believe that parts of pandemic
risk are indeed insurable, but not without significant Government
support. The global nature and timing of pandemics means that there is
not enough capacity in the industry to take on the risk unless there is
a public-private partnership that engages the full credit and support
provided by a Government backstop.
Consider that there was about $910 billion of surplus in the
insurance market at the end of 2020. But the surplus is largely
committed to support other risks, while COVID-19 will end up costing in
the trillions of dollars. However, the insurance industry's ability to
take some level of risk, build surplus, handle claims, encourage risk
mitigation and promote resilience can be of real value in a public-
private solution.
Marsh is not promoting a specific solution. We are advocating for a
public-private partnership that will accelerate economic recovery by
leveraging the insurance expertise and infrastructure that is already
in place to reduce uncertainty. We are advocating for a solution that
allows insurers, reinsurers, and other capital providers to play a
limited but valuable role. Insurance creates the right economic
incentives to drive change in society.
There are many past examples of how Governments and the private
sector have come together to reduce risk and restore insurability,
whether it be the establishment of fire brigades after the Great Fire
of London of 1666 or the passage of the Terrorism Risk Insurance Act,
and the creation of the Department of Homeland Security to coordinate
security and intelligence responses to terrorism risk in the aftermath
of September 11.
If we create the right economic incentives for insurers,
policyholders, and the Government, insurance can serve its traditional
function of mitigating risk. Over time, the right risk program can spur
new technologies, ways of working, services, insurance products, and
processes to ultimately chip away at the enormous losses associated
with pandemics. That, in turn, can help make pandemic risk more
manageable and enable our economy to build the necessary resilience it
needs for the future.
There is some optimism that improvements in preparedness and
response could reduce the impact of future pandemics, and that the
challenges to insurability of pandemic-related business interruption
losses can ultimately be overcome.
As you can see in Figure 3, there are a number of existing risk
pooling structures here in the U.S., and a variety of Government-backed
pools in other countries. At Marsh McLennan, we have been a party to
the formation and ongoing support of most of these facilities around
the world and understand the rationale as to why and how each of them
have been structured and how they help policyholders.
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Conclusion
In summary, the high level of interconnectivity that defines the
world today brings many benefits. However, it also sets the stage for
more frequent epidemics and pandemics, which can have enormous social
and economic consequences. If we fail to address the lessons learned
from COVID-19 with regard to risk management and insurance, then
businesses, nonprofits, and public entities alike will have even less
coverage available to them than prior to March 2020, and will be even
more in need of Government assistance in the next pandemic.
There is still much work to be done, and many people are still
struggling with the ongoing effects of COVID-19. But there is also hope
and optimism that we have reached a turning point.
As we continue to manage our way through the current pandemic, we
need to prepare for the potential that another one will emerge. We need
to help companies--our clients and others--plan an effective corporate
response to future epidemics and pandemics.
The complexity of pandemic risk calls for close cooperation by the
public and private sectors in managing its impacts. The key to building
a more proactive and agile response to the next pandemic will be an
insurance and risk management partnership with the Government that
helps facilitate coverage, aligns the desires of both insurers and
policyholders, and requires mitigation practices. An efficient and
effective pandemic insurance program will accelerate recovery and build
resilience.
Appendix A
1. OECD: Addressing the Protection Gap for Pandemic Risk: Setting
the Scene (https://www.oecd.org/finance/insurance/addressing-
protection-gap-pandemic-risk.htm)
2. OECD: Addressing the Protection Gap for Pandemic Risk: Finding a
Way Forward--Conference Outcomes (https://www.oecd.org/finance/
insurance/addressing-protection-gap-pandemic-risk.htm)
3. Note: Marsh will be releasing a pandemic report in the coming
weeks, and will send to the Committee once completed.
______
PREPARED STATEMENT OF ROBERT GORDON
Senior Vice President for Policy, Research and International, American
Property, Casualty Insurance Association
July 22, 2021
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF
CHAIRMAN MENENDEZ FROM ADENAH BAYOH
Q.1. What would it mean to your business, your employees, and
your community to have a safety net, be it an insurance product
or Government program, that would cover payroll and other
expenses next time we're faced with a pandemic or even a harsh
3rd wave of COVID?
A.1. Participation in a public-private pandemic risk insurance
program that is both accessible and affordable would provide a
level of confidence and assurance to myself and other small
business owners across the country that there is a program in
place to manage the risk of the pandemic or future pandemics.
This would allow managers, workers, investors, and employers
alike to confidently pursue economic activity and business
operations without fear that those efforts will wipeout or
diminish in the face of a future pandemic.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ADENAH BAYOH
Q.1. At the beginning of the pandemic, what were the immediate
financial needs that you had to meet, and what did it feel like
to carry that burden?
A.1. The immediate need was to make sure that all my employees
were well and able to keep food on their tables and a roof over
their heads. This is when I made the decision to continue
paying my employees as if they were still working in the
restaurants.
Q.2. Were you able to benefit from the PPP? How long did it
take you to receive your funding, and did you encounter delays
or bureaucracy?
A.2. Yes, I benefited from PPP; however, we were rejected by
banks that we do not do banking with. It was definitely not a
quick or easy process. After so many rejections, we finally
found a bank willing to help; however, there were still many
channels we had to go through to finally receive the funds 2-3
months later.
Q.3. I know you made a decision early on that you would keep as
many of your employees on payroll as possible. I think that is
admirable. Why did you make that decision, and what did that
mean to your employees and their families?
A.3. I made this decision because the number one priority
during the shutdown was to make sure that my employees were
able to keep food on the table and a roof over their heads.
Q.4. I am leading a group of Democrats and Republicans that are
designing a partnership that would allow you to purchase
affordable private insurance to support your business in a
future pandemic. Would you want to purchase this coverage?
A.4. Yes, but only if it is accessible and affordable.
Q.5. And if so, what would be the essential expenses that you
would need covered?
A.5. Payroll and operating expenses.
Q.6. When you think about insurance as a small business owner,
what does that mean to you?
A.6. Insurance is an essential tool for hedging risk that
allows a small business owner to pursue his or her dreams and
create jobs.
Q.7. What is the role of the insurer in helping your business
succeed and create jobs?
A.7. Insurers add value for small policyholders not only by
pooling the risk but by also bringing expertise to the
policyholder to help improve business practices for mitigation
and to help shape the financial product to meet his/her
particular needs. It also provides security to future employees
who know that in time of need our insurance company will
protect their job security by providing funds to them if some
tragedy strikes again which causes another statewide shutdown.
Q.8. What would it mean to you to have insurance and know those
essential expenses were covered?
A.8. As a small business owner, the ability to participate in a
pandemic risk insurance program that is both accessible and
affordable would provide me with a level of confidence and
assurance that my business would survive a future pandemic and
my employees would be protected.
Q.9. What would that enable you to focus your time and energy
on?
A.9. It would enable me to grow my business, create jobs, and
continue to donate my time and assistance to helping the
communities that we serve.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ADENAH BAYOH
Q.1. We heard testimony comparing pandemic risk insurance to a
number of existing federally supported insurance programs. As
pandemic risk insurance is debated and considered, what are the
top lessons that we can carry over from other insurance
programs to a program that covers pandemic risk?
A.1. Programs which leverage both expertise and risk-taking
capacity of the private insurance industry have generally been
the most successful.
Flexibility in coverage design is essential in a complex
economy where insurance needs vary widely by industry and
sector.
Q.2. One of the key successes of the Paycheck Protection
Program was the speed with which private sector lenders
distributed hundreds of billions of emergency funds to millions
of struggling small businesses all across America during the
height of the pandemic in 2020. Many small businesses faced
working capital constraints that made getting emergency funds
quickly critical to their survival. As pandemic risk insurance
is debated and considered, what design features can help ensure
that under insurance that covers pandemic risks, claims are
paid out as expeditiously as possible?
A.2. The private insurance industry can be extraordinarily
efficient in distributing claims payments following a
catastrophe. For example, the response to every major hurricane
demonstrates this efficiency. Certainly insurers, more than
bankers, are geared to exactly that sort of claim payment
scenario. The issue here is not the distribution of loss
payments, rather it is the ability of the insurance industry's
capacity and willingness to underwrite this type of risk going
forward.
As the BCC recommends a successful program (in a major
pandemic resulting in lock-down or reduced business activity
situation) would need to utilize a parametric style product in
order to process initial claim payments on a timely basis
without prior proof of loss. Accordingly, the BCC incorporates
the parametric policy feature in its proposal.
------
RESPONSES TO WRITTEN QUESTIONS OF
CHAIRMAN MENENDEZ FROM EVAN G. GREENBERG
Q.1. Chubb's proposal consists of two elements--a program for
small businesses that would provide an immediate payment when a
pandemic is declared and then an indemnity-based plan for
medium and large businesses, which you define as businesses
with over 500 employees.
Can you elaborate on why you propose a differentiated
approach for small businesses versus larger ones?
A.1. The COVID-19 pandemic has shown us that pandemics do not
impact all businesses equally. When the economy shuts down,
small businesses are generally at much greater financial risk
than larger businesses and may face immediate closure because
they have more limited financial resources, less liquidity, and
less access to capital, credit, and risk-management mechanisms
than larger businesses. Small businesses, therefore, require
different types and levels of assistance to survive a pandemic.
Chubb's proposal would provide small businesses with resources
to cover up to 3 months of payroll and other expenses with
parametric claims payments distributed quickly after the
declaration of a pandemic.
For medium and large businesses, a market-oriented approach
is more appropriate. Medium and large businesses generally have
more financial resources and options than smaller businesses;
it makes sense for these businesses to pay an appropriate risk
adjusted price to insurers for their exposure and to the
Government for the use of the Federal balance sheet and
assumption of the tail risk.
Q.2. Why did you set the dividing line at 500 employees?
A.2. A critical component of the Chubb proposal is addressing
the differing needs of small businesses vs. medium/large
businesses. Therefore, the Chubb proposal distinguishes small
businesses from medium/large businesses as mentioned above. The
500-employee cut-off is the figure the Labor Department uses to
define SMEs and was used in the PPP program. Another factor is
insurance buying sophistication. Many insureds with over 500
employees also employ risk managers as part of their finance
teams to help manage their insurance buying.
Q.3. Are there other metrics we should consider if we pursue a
tiered approach to a pandemic risk insurance program?
A.3. Our proposal distinguishes between small businesses and
medium and large businesses. We have also made suggestions
regarding when a policy would be triggered, but Congress could
explore appropriate triggers to ensure payments are made solely
to those in need to reduce the moral hazard.
Q.4. One effect we clearly saw from this pandemic is that not
all industries were affected equally.
Are there certain lines of insurance or industries that
will see cost increases or capacity retrenchment if Congress
does not establish a prospective pandemic risk insurance
program?
A.4. Typically following an event of this magnitude insurance
markets respond by altering terms and conditions and limiting
capacity. Business interruption, event cancellation and film
production insurance lines have produced some of the largest
Covid-related losses for the industry. As insurers have
reassessed their risk tolerance, many have reduced their
coverage or exited markets altogether. Coverage for these
lines, therefore, has become generally less available and less
affordable.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM EVAN G. GREENBERG
Q.1. Even though the U.S. has turned the corner on its
recovery, it's important to remember that the pandemic is still
ongoing and each month brings a wealth of new data and insight
to consider. For this reason, I'm hesitant for Congress to rush
to put a permanent pandemic solution in place when the story is
still only half written.
Since Chubb initially released its pandemic risk framework
last summer, how has the changing recovery landscape influenced
your perspective on the way that those policies and programs
should be structured?
A.1. The COVID-19 pandemic has lasted longer than many of us
assumed in the spring of 2020, and we have learned a great deal
about how a pandemic of this magnitude affects the economy. We
should take the lessons learned from this pandemic to better
manage the risk going forward. Managing a pandemic by shutting
an entire economy down for an extended period of time and
spending trillions of dollars with no foresight or planning is
not a solution for addressing similar crises in the future, but
we have learned from this experience. We can restrict the time
and extent of shutdowns with a much better health care response
early on, manufacture and use of PPE, masking and social
distancing, and coming to grips with the notion of digital
contact tracing and isolating, for example. If we can restrict
the time the economy is shut down, then we restrict the overall
amount that the economy suffers and the cost.
Q.2. With continued influx of new information related to the
impact of COVID-19 emergency and subsequent recovery, does your
organization still strongly believe in the necessity of a
formal federally backstopped insurance program?
A.2. We believe a public-private pandemic insurance program
would be beneficial in helping to address some of the economic
devastation caused by pandemics and the business closures that
Governments mandate to fight the spread of the disease. Even if
it is not a total solution, a public-private partnership that
creates a workable and effective pandemic risk insurance
program is better than an ad hoc approach that relies on
shutting down the economy for months at a time.
Q.3. If so, can you discuss the specific benefits that a
public-private approach--broadly speaking--would afford
policyholders, participating carriers, and taxpayers relative
to the preservation of the existing environment?
A.3. Insurance industry involvement would help assess and
absorb pandemic business interruption risk onto its balance
sheet, taking some, albeit a limited amount, of the financial
burden off the Government; encourage risk mitigation and
provide risk management tools to businesses; and use its
administrative infrastructure for policy issuance, premium
collection, and claim settlement. Chubb's program would combine
the insurance industry's risk insight and experience with the
Government's balance sheet, providing the foundation for an
affordable, efficient, liquidity backstop for small businesses
and a market-based program for larger businesses. A public-
private partnership would provide greater certainty to
businesses so they can keep employees on the payroll and pay
their bills. Ultimately, private sector participation will
encourage the development of direct and secondary markets,
which can reduce the Government's financial burden over time.
The Federal Government's role would be to assume the tail risk,
thus enabling the private sector to limit its financial
exposure. Without that, pandemic risk is uninsurable by the
private sector because of the potential magnitude of the loss.
Even if it is not a total solution, a public-private
partnership that creates a workable and effective pandemic risk
insurance program is a huge improvement over an ad hoc approach
that relies on shutting down the economy for months at a time.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM EVAN G. GREENBERG
Q.1. What is the purpose of insurance? And what value do
insurers add to the small businesses and major employers with
whom they do business?
A.1. The purpose of insurance is to reduce financial
uncertainty for individuals and businesses and make accidental
loss manageable. Businesses, Governments, nonprofits, and
individuals (policyholders) pay premium to an insurance company
to protect them from various types of financial loss when a
specific event, covered by the insurance policy, occurs. This
insurance protection helps spread the risk and makes financial
losses more affordable. This is done by pooling the risks of
many individuals and business entities and transferring them to
an insurance company with the expectation that all losses do
not occur at the same time. In some cases, insurance is
required by the Government or by others you are doing business
with or buying services from.
Q.2. Why should addressing gaps in insurance coverage be an
important priority for businesses of all sizes?
A.2. Coverage gaps expose businesses to risk of loss that can
cause significant financial harm. Depending upon the type of
risk, and the financial exposure, the gap in coverage could be
catastrophic, resulting in bankruptcy or closure. Insurance
provides a mechanism to help plan for and mitigate some of
those risks.
Q.3. How do you assess the current state of the commercial
insurance market? To what extent did the pandemic cause or
accelerate hardening in the market, and why?
A.3. Commercial property and casualty insurance is currently
experiencing ``hard'' or firming market conditions where rates
are increasing for most lines of business. Rates are
approaching or in some cases have reached a state of adequacy
for insurers to achieve a reasonable risk-adjusted rate of
return after many years of inadequate price conditions. The
firming conditions have been brought on by increased losses
from a more hostile loss environment, a heightened perception
of risk and, again, many years of inadequate pricing of
insurance due to competitive market conditions. Losses related
to the global pandemic, which the industry estimates will
exceed $80B or more and will be the single largest loss event
in history, have contributed to the hard market.
Q.4. Notwithstanding explicit exclusions of pandemic-related
damages, do you assess that insurance coverage for business
interruption, event cancellation, and film production is more
or less available than it was prior to March 2020? Do you
assess that these lines of insurance coverage are more or less
affordable? Please elaborate and justify your response.
A.4. Business interruption, event cancellation and film
production insurance lines have produced some of the largest
Covid-related losses for the industry. As insurers have
reassessed their risk tolerance, many have reduced their
coverage or exited markets altogether. Coverage for these
lines, therefore, has become more limited and more expensive.
Q.5. Assuming a particular line of insurance can be written,
why is it important for insurers to bear some level of risk in
public-private partnerships?
A.5. Private sector participation can be helpful to assess the
amount and extent of pandemic losses, enabling better
understanding of the risk and the cost to policyholders. In
addition, the private sector can absorb pandemic business
interruption risk onto its balance sheet, taking some, albeit a
limited amount, of the financial burden off the Government.
Further, by pricing risk appropriately, the insurance industry
encourages risk mitigation by policyholders, who will take
steps to reduce their risk to reduce premiums. The industry may
also provide policyholders with risk management tools for the
same reason.
Q.6. How do risk management incentives change for insurance
companies when they are required to bear some level of risk as
part of a particular insurance program, in contrast to
insurance programs in which they would bear no risk at all?
What implications would this have in ensuring effective program
administration and reducing waste, fraud, and abuse?
A.6. Chubb believes that the insurance industry can play a
meaningful role in providing future pandemic risk coverage that
would protect U.S. businesses small to large. We should not
merely act as administrators of a Government program as some
have suggested--that diminishes us as an industry and our role
in risk mitigation. Risk mitigation is critical to limiting the
size and scope of losses. Additionally, when an organization
has a financial interest, they may be a better steward of funds
and utilize existing fraud teams to help reduce instances of
abuse.
Q.7. Setting aside existing litigation, do you believe as a
policy matter that business interruption insurance can or
should cover pandemic-related damages? Why or why not?
A.7. Pandemics are not limited to a specific geography, time
period, or risk class, but instead can affect entire economies,
almost every business, and most of the population at the same
time, resulting in losses so great that the event is
uninsurable by the insurance sector alone. The industry has not
and could not charge an adequate premium to cover such a risk,
and more important, the industry does not have the balance
sheet capacity to do so. Our balance sheets are finite and the
risk, for all intents and purposes, is infinite. Insurance
regulators and the industry have recognized this fact and that
is why business interruption coverage against a pandemic has
not been broadly available. The only way pandemics can be
covered is under a public-private partnership, whereby the
Government assumes the tail risk, thus enabling the private
sector to limit its financial exposure.
Q.8. There is concern that an inability to obtain adequate
business interruption, event cancellation, and film production
insurance could result in significant off-shoring of U.S.-based
film production. If you do not believe these lines of coverage
should cover pandemic-related damages, how would you propose to
address this issue and prevent off-shoring and loss of U.S.
jobs?
A.8. This is a broader issue than insurance coverage and defer
to the affected industries to comment as to whether Congress
should address the effect of pandemics on off-shoring of
industries, as some other countries have done.
Q.9. How does your company's support of a public-private
partnership to respond to future pandemics align with your
company's values, mission, and belief in the power of
insurance?
A.9. Chubb's mission is to provide superior client value. We
serve our policyholders not only through careful underwriting
and pricing, and fair claims payment, but by working with them
to help them get the coverage they need and mitigate risk where
possible. Certain circumstances, like pandemics are too
difficult for the private market to handle on its own,
therefore the industry would need to the Federal Government to
assume a portion of the risk. Participation in a public-private
partnership for pandemic risk falls right within that mission.
Q.10. Suppose Congress were to establish a public-private
partnership to respond to future pandemics, in which
participating insurers were responsible for program
administration. A future pandemic may require insurers to
rapidly scale up personnel, including claims adjusters and
customer service representatives, to respond to a sudden and
large volume of requests. What would be your plan to respond to
this challenge, and how would you ensure effective program
administration and sufficient capacity under difficult and
fluid circumstances?
A.10. An important feature of the BIP (small business plan) in
Chubb's proposal is the parametric claims payment, which would
utilize technology to facilitate claims payments. This
parametric approach would not need individual claims adjustment
because it will pay automatically when key triggers are met.
Insurers have the institutional knowledge and capacity to
also manage claims for catastrophic events, including a large
volume of claims and large complex claims. This provides us
with the experience necessary to manage claims for medium and
large business in connection with PanRe, which would utilize a
traditional claims adjustment process.
Q.11. Do you believe insurers can play a role in reducing the
severity of pandemics by providing incentives for businesses to
take appropriate mitigation measures?
A.11. Yes. That is one of the core benefits of our proposal.
For example, there is a short waiting period in the Chubb
program prior to claims payments; this is designed to encourage
mitigation. For larger businesses, proper pricing of risk
encourages risk mitigation by policyholders, who will take
steps to help reduce their risk to reduce premiums.
Q.12. Your testimony speaks to the importance of identifying a
pandemic risk-sharing solution for small businesses, a priority
I share. Specifically, you indicate insurers would
``participate in the first wave of losses up to a certain
amount and the balance of the insured loss would be paid by the
Government. To accomplish this, the insurance industry would
receive an adequate risk adjusted rate for its portion of the
risk and the Government would absorb the cost of its portion of
the risk.'' What steps should policymakers take to determine
the adequate risk adjusted rate?
A.12. When Chubb put together our proposal, our starting point
was a single rate based on the payroll period being covered and
a potential multiplier to reflect additional business expense.
Insurers can assist with modeling and determine pricing
depending on specific parameters. It's important to note that
insurance rates are currently regulated under State insurance
law. The States require that rates are not ``excessive,
inadequate, or unfairly discriminatory.'' To that end, most
insurance rates are filed with the State insurance departments,
which review the proposed rates for compliance with the law.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM EVAN G. GREENBERG
Q.1. We heard testimony comparing pandemic risk insurance to a
number of existing federally supported insurance programs. As
pandemic risk insurance is debated and considered, what are the
top lessons that we can carry over from other insurance
programs to a program that covers pandemic risk?
A.1. While none of the current Federal programs (NFIP program,
crop insurance or TRIA) are perfect, each provides
policyholders and the insurance markets certainty and
stability, as well as assisting with affordability and
availably of insurance where otherwise there would be limited
coverage or high prices.
Q.2. One of the key successes of the Paycheck Protection
Program was the speed with which private sector lenders
distributed hundreds of billions of emergency funds to millions
of struggling small businesses all across America during the
height of the pandemic in 2020. Many small businesses faced
working capital constraints that made getting emergency funds
quickly critical to their survival. As pandemic risk insurance
is debated and considered, what design features can help ensure
that under insurance that covers pandemic risks, claims are
paid out as expeditiously as possible?
A.2. Our proposal is designed specifically to address the
liquidity needs of small businesses. As noted in Chubb's
testimony, the COVID-19 pandemic has shown us that when the
economy shuts down, small businesses are generally at much
greater financial risk than larger businesses and may face
immediate closure because they have more limited financial
resources, less liquidity, and less access to capital, credit,
and risk-management mechanisms than larger businesses. Small
businesses, therefore, require different types and levels of
assistance to survive a pandemic. That is why our proposal
would create the Pandemic Business Interruption Program for
small businesses. The BIP would provide small businesses with
an immediate infusion of cash (after a short waiting period
designed to encourage some level of mitigation) after the
declaration of a pandemic. The amount of the claims payment
would be based on preset multiples of payroll (up to 3 months)
at the time of policy purchase and paid according to a simple
parametric structure, which would eliminate the need for
complex and time-consuming adjustment of individual claims.
With the BIP, therefore, small businesses know in advance they
have cash to cover payroll and other expenses to maintain
businesses in the event of a shutdown, and they get that cash
quickly.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ROBERT HARTWIG
Q.1. What is the purpose of insurance? And what value do
insurers add to the small businesses and major employers with
whom they do business?
A.1. The purpose of insurance is to pool, spread, and diversify
risk so that the losses of the few are paid by the premiums of
the many. Small businesses are vulnerable to innumerable risks
that can potentially lead to material adverse economic
consequences, some large enough to destroy the business itself.
Appropriate types of insurance with adequate limits of coverage
can greatly reduce the likelihood that businesses will suffer
significant adverse financial consequences from many of these
risks.
Q.2. Why should addressing gaps in insurance coverage be an
important priority for businesses of all sizes?
A.2. Gaps in coverage can lead to serious or irrevocable
financial harm to businesses--up to an including the bankruptcy
of the business. Eliminating gaps immediately upon
identification is critical. For example, a business that
discovers it does not have flood coverage after a hurricane
watch or warning is announced may not be able to purchase the
coverage at all until after the storm has passed. The same is
true for cybercoverage and insurance for many other types of
risk.
Q.3. How do you assess the current state of the commercial
insurance market? To what extent did the pandemic cause or
accelerate hardening in the market, and why?
A.3. The commercial insurance market today can generally be
characterized as ``firm'' or ``hard.'' This implies that rates
are generally rising and terms and conditions for coverage are
generally narrowing. That said, coverage for the vast majority
of risks is available, in the limits needed, albeit at a higher
premium and with programs potentially requiring the
participation of more insurers than in the past. The pandemic
had a mixed impact on the commercial insurance market. Concern
over litigation led to a tightening of the business
interruption market and workers compensation insurers have paid
hundreds of millions of dollars in claims for workers sickened,
quarantining or dying from COVID if contracted in an
occupational context. At the same time, there were fewer
occupational injuries overall due to widespread closures and
there were fewer motor vehicle accidents involving commercial
vehicles, especially during the early stages of COVID, as
driving activity was reduced. The pandemic also led the Federal
Reserve to sharply reduce interest rates, lowering the return
on insurer invested assets. All else equal, lower interest
rates imply less investment income--and less investment income,
all else equal, implies higher insurance premiums (as less
investment income is available to pay claims).
Q.4. Notwithstanding explicit exclusions of pandemic-related
damages, do you assess that insurance coverage for business
interruption, event cancellation, and film production is more
or less available than it was prior to March 2020? Do you
assess that these lines of insurance coverage are more or less
affordable? Please elaborate and justify your response.
A.4. Business interruption (BI) coverage is just as available
today as it was before the pandemic--for the types of risk it
has always been intended to cover. Specifically, there is ample
capacity for BI losses stemming from direct physical loss or
damage to covered property from a covered cause of loss (e.g.,
fire, wind, theft, etc.). As detailed in my testimony, BI
losses stemming from reduced demand not arising from direct
physical loss or damage to insured property have never been
covered. To the extent BI coverage is more expensive today than
prior to the pandemic, the increase in costs is largely
attributable to record or near-record catastrophe losses in the
United States over the past several years. Event cancellation
and coverage for film production are arguably less available
today--or are more expensive--than prior to the pandemic. That
said, many live performance events are resuming across the
United States, as is domestic film production. It is likely
that both industries will need to make material investments in
risk management (e.g., mandating vaccines for those who work on
sets/mandating vaccines and/or masks for concertgoers) in order
to reduce risk and increase the insurability of this category
of risk. The attached Wall Street Journal article (published 7/
29/21) provides some sense of the urgent need for the most
basic of risk management in the film industry. \1\ As COVID
recedes and sound risk management practices become the norm,
more insurance capacity will flow into this market.
---------------------------------------------------------------------------
\1\ Flint, J., and Watson, R., ``Hollywood Productions Halted as
COVID-19 Emerges on Sets Again'', Wall Street Journal, July 29, 2021.
Accessed August 5, 2021, at: https://www.wsj.com/articles/hollywood-
productions-halted-as-COVID-19-emerges-on-sets-again-
11627551001?page=1.
Q.5. Assuming a particular line of insurance can be written,
why is it important for insurers to bear some level of risk in
---------------------------------------------------------------------------
public-private partnerships?
A.5. My testimony summarizes the criteria necessary for the
insurability of risk. Business interruption (BI) losses from
pandemic events violate all those criteria and are, in my
assessment, uninsurable in the private sector. Generically,
public-private partnerships can be designed with varying levels
of risk sharing on the part of insurers--from zero risk to a
significant share of the risk. Assuming that the risk can
actually be underwritten (i.e., criteria outlined in my
testimony are satisfied) and that the Government allows
actuarially sound rates to be charged, then a sharing of loss
between Government and private insurers can lead to an
efficient outcome. Efficiency implies that, over time, there is
minimal burden on taxpayers, insurers can earn a risk
appropriate rate of return and adequate capacity is available
in the marketplace. An efficient market also implies that there
is an alignment of incentives such that insurers price to risk,
providing policyholders with incentives to mitigate against
loss. Ultimately, policyholders benefit from reduced losses,
insurers benefit from lower claim payouts and taxpayers benefit
from reduced exposure to loss.
Q.6. How do risk management incentives change for insurance
companies when they are required to bear some level of risk as
part of a particular insurance program, in contrast to
insurance programs in which they would bear no risk at all?
What implications would this have in ensuring effective program
administration and reducing waste, fraud, and abuse?
A.6. The answer to this question is partially addressed in my
response to Question 5. For risks that meet the criteria for
insurability, and which are priced in an actuarially sound
manner, significant incentives to promote risk mitigation can
be implemented. The ``efficient outcome'' referred to in my
response to Question 5 also implies that policyholders,
insurers and Government have a mutual interest in effective
program administration and minimizing waste, fraud, and abuse.
Q.7. Setting aside existing litigation, do you believe as a
policy matter that business interruption insurance can or
should cover pandemic-related damages? Why or why not?
A.7. As stated in my testimony business interruption losses
arising from pandemics are fundamentally uninsurable in the
private insurance sector. Forcing insurers to provide a product
that for sound business reasons (e.g., the threat of insolvency
from massive losses) they themselves have determined not to
bring to market would create a systemic risk within the
commercial insurance sector, potentially resulting in less
coverage and higher prices for tradition BI risks and broadly
increasing the threat of insolvency. Also as stated in my
testimony, BI is designed to provide coverage if and only if
there is direct physical loss or damage to covered property
from a covered cause of loss. Insurers have asserted and courts
have affirmed that COVID-19 does not meet this condition. In
addition, because much of the loss of income to businesses was
due to the fact that consumers simply withdrew from commerce,
the problem is more fundamentally related to changes in demand
in the macroeconomy. Stabilization policies designed to
mitigate the impact of economic downturns are now and have
always been the exclusive domain of Government. The appropriate
policy response is the application of fiscal and monetary
policy, not an obligation that private insurers bring a new
insurance product to the market.
Q.8. There is concern that an inability to obtain adequate
business interruption, event cancellation, and film production
insurance could result in significant off-shoring of U.S.-based
film production. If you do not believe these lines of coverage
should cover pandemic-related damages, how would you propose to
address this issue and prevent off-shoring and loss of U.S.
jobs?
A.8. As noted in my response to Question 4, many live
performance events are resuming across the United States, as is
domestic film production. While disruptions will continue for
some time, it's important to understand that disruptions exist
around the world, not just in the United States. Hence,
offshoring of production would not solve the problem. The
solution to both reducing disruptions in production and
restoring lost insurance capacity will be driven by the
implementation of--and stringent adherence to--sound risk
management practices. Film producers will need to make material
investments in risk management (e.g., mandating vaccines for
those who work on sets) in order to reduce risk and increase
the insurability of this type of risk. The attached Wall Street
Journal article (also referred to in my response to Question 4)
provides some sense of the urgent need for the most basic of
risk management in the film industry. According to the article,
``uncertainty over vaccination protocols'' is one of several
factors disrupting film production. The National Executive
Director of the Screen Actors Guild is quoted in the same
article stating that ``For people who don't have a legitimate
religious or medical reason for exemption, they're simply going
to have to make a decision for themselves whether they wish to
work for that employer who has a mandatory vaccination
policy.'' As COVID recedes and sound risk management practices
are more widely adopted, additional insurance capacity will
flow into this market.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ROBERT HARTWIG
Q.1. We heard testimony comparing pandemic risk insurance to a
number of existing federally supported insurance programs. As
pandemic risk insurance is debated and considered, what are the
top lessons that we can carry over from other insurance
programs to a program that covers pandemic risk?
A.1. The primary lesson to be learned is that any program that
does to not price risk on an actuarially sound basis will
likely become a burden on the taxpayer and will do little to
encourage mitigation against risk. Though there have been some
recent reforms, this has been the case for more than 60 years
for the National Flood Insurance Program (NFIP). The NFIP has
run up enormous taxpayer funded deficits while also providing
insufficient incentives to discourage development in flood-
prone areas and/or encourage mitigation.
Q.2. One of the key successes of the Paycheck Protection
Program was the speed with which private sector lenders
distributed hundreds of billions of emergency funds to millions
of struggling small businesses all across America during the
height of the pandemic in 2020. Many small businesses faced
working capital constraints that made getting emergency funds
quickly critical to their survival. As pandemic risk insurance
is debated and considered, what design features can help ensure
that under insurance that covers pandemic risks, claims are
paid out as expeditiously as possible?
A.2. I testified that after analyzing the efficacy of
established, new and expanded Government programs employed to
combat the negative economic consequences of the COVID-19
pandemic, the PPP can be considered reasonably successful at
delivering large sums of relief rapidly. Though adjustments can
and should be made to the PPP (e.g., expanding the network of
banks through which PPP funds can be accessed), virtually every
small business in America was eligible to participate. For an
insurance program to be similarly successful, virtual all
American small businesses would need to participate and pay a
risk-appropriate premium--likely for many years, if not
decades. It is likely that initial take-up rates for such
coverage will be modest-to-low, with take-up rates diminishing
each successive year. In other words, as COVID-19 recedes into
history, fewer businesses will purchase coverage--viewing the
likelihood of another pandemic occurring anytime soon as
remote. Take-up rates could be increased by (i) making the
purchase of such coverage mandatory, or (ii) subsidizing the
premium. The former is likely to be unpopular with the business
community while (ii) will impose an ongoing cost to taxpayers.
Take-up rates will also be reduced by ``moral hazard'' effects.
In this context, moral hazard refers to the perception or
belief by business owners that Federal aid will be forthcoming
irrespective of their insurance purchase decision. That belief
will deter the purchase of insurance.
------
RESPONSES TO WRITTEN QUESTIONS OF
CHAIRMAN MENENDEZ FROM L. CHARLES LANDGRAF
Q.1. There's clearly a divergence between those who believe we
need an insurance-based product and those who believe the
Federal Government is better placed to provide these services.
From a policyholder perspective, why does the Business
Continuity Coalition prefer a public-private insurance solution
instead of an entirely Government aid program even though both
may be able to provide the same amount of financial relief to a
business?
Why not suggest Congress make PPP permanent?
A.1. The Business Continuity Coalition urges Congress to enact
a public-private insurance solution instead of an entirely
Government aid program to address pandemic risk protection
going forward. There are several compelling reasons to favor a
public private insurance solution over a purely Government aid
program. Indeed, at its best a Government aid program would
address only one aspect of the multidimensional protection gap
that has been exposed, and in important ways exacerbated, by
the COVID-19 pandemic. On the other hand, a public private
insurance program, modeled in key respects on the Terrorism
Risk Insurance Program (TRIA), would provide the flexibility
for insurers and their business policyholders to fashion
insurance coverage solutions to address specific needs of
particular industry sectors and business. Reasons why a public-
private insurance solution is preferrable to an entirely
Government aid program:
1. The Government-only revenue-replacement proposals (e.g.,
APCIA/NAMIC ``BCPP'') might provide relatively rapid
parametric pay-outs of a limited benefit in the next
pandemic but such proposals
assume a year-on-year reference period which does
not fit new, growing, or project-specific enterprises
which have their own risk-protection needs (esp. event
cancellation, film and television production, and
others);
in other ways are more rigid than insurer-to-
customer policy formation;
fail to marshal any private risk capital; and
do nothing to address the new lack of pandemic
coverage in other lines of insurance such as general
liability (GL), D&O, and employment practices liability
(EPL), or the need for capacity support in mandated
lines such as workers compensation (WC).
2. Business owners and nonprofits overwhelmingly would
prefer to have present insurance products to protect
their ongoing operations rather than access to a future
Government benefit. In a response to a membership
survey earlier this year by the Risk & Insurance
Management Society, over 90 percent of responding risk
managers said they would prefer to purchase pandemic
insurance through their broker or agent. Many larger
businesses and nonprofits will need to build additional
layers of protection above any Government-defined
benefit. This would be facilitated and more likely to
provide appropriate protection if the underlying layer
itself is an insurance policy rather than a Government
benefit entitlement.
3. The most successful Government-supported property-
casualty insurance programs have generally been
structured as private insurance with Government
reinsurance or tail protection such as TRIA, the
Federal Crop Insurance Program (FCIP) and even the WW
II-era War Damage Corporation (WDC), which initially
provided Government-backed ``enemy attack'' insurance
but very quickly evolved into a public-private risk-
sharing arrangement. It is important to utilize not
only the insurance sector's distribution and claims
handling skills but also their knowledge and skill in
risk analysis and underwriting expertise. Both Chubb
and Zurich have been eloquent in their articulation of
the substantive contribution which the insurance sector
can bring to address this problem and why that only is
effective if they also participate in the risk sharing.
4. Permanence, or at least indefinite or long-term duration,
is desirable--indeed essential--for this insurance
program. The Federal Crop Insurance Corporation and the
Commodity Credit Corporation are current examples of
successful long-term programs on which a Pandemic
Reinsurance Corporation could be modelled.
Q.2. The Business Continuity Coalition's proposal is the only
proposal that was discussed at the hearing that would require
insurance companies to participate in the program.
Why do you believe mandatory participation is necessary?
A.2. Private property casualty insurers similarly did not
initially offer or want mandatory participation in what became
the TRIA program following September 11th. However, the
mandatory participation element of that program was soon
accepted by both insurers and their State solvency supervisors
and the very high take-up rates which continue to be obtained
nearly 20 years later are a testament to the success of that
mandatory feature and serve to widely distribute that risk as
well as keep the insurance industry engaged in the management
of that systemic risk to the benefit of society as a whole. The
insurance sector's response to the pandemic risk has been
characterized by market observers as a ``full allergic
reaction'' to the peril, including precipitous withdrawal from
lines of coverage (e.g., GL, EPL, D&O) where large-scale
pandemic-related losses have not been reported (unlike the
disputed business-interruption line). To achieve market
stabilization, as was achieved for terrorism risk insurance
after an initial precipitous withdrawal in 2001-2, requires a
similar approach here. Initial take-up rates, which are
critical to risk distribution and program success, would not be
achieved (for lack of access) without mandatory offers from
insurers. It should be kept in mind that the mandatory
participation being proposed here is at most a ``soft''
mandate, in that it only requires an insurer to offer to cover
the peril within a policy (in a relevant line of business) that
the insurer is otherwise already proposing to issue. It does
not mandate an offer where there is no policy relationship. The
insurer and policyholder (and intermediary) remain free in most
respects to shape the coverage and to agree, subject to State
regulation, the pricing. TRIA proved the model's soundness.
Indeed, the mandate which BCC propose here is even ``softer''
than TRIA's because insurers would be given an option to avoid
direct coverage by alternatively supporting a nonrecourse joint
underwriting facility (similar to the California Earthquake
Authority).
Q.3. One issue we'd need to address in any solution is how to
ensure a pandemic insurance product is accessible and
affordably priced so that we have widespread adoption among the
business community. That could help balance the risk pool to
ensure that the program could cover losses that may be
restricted to one part of the country or perhaps a particular
industry where social distancing or other preventative measures
are hard to implement.
What are your estimates of take-up under your proposals?
What is the minimum take-up rate that would be needed to
cover the claims your plans envision?
A.3. BCC agrees that accessibility and affordability are
critical to widespread adoption by the business community. The
TRIA-styled mandatory offer (see above discussion) is intended
to ensure accessibility. BCC has not proposed any form of price
control or regulation at this time. As with TRIA, BCC proposes
that State rate supervision (or not) remain in place, subject
to any transition rule to enable insurers to comply with the
offer mandates promptly. Affordability is addressed through the
substantial reinsurance support to be provided by the Federal
Government (95 percent, or more if the insurer also applies for
stop loss-protection). BCC proposes that the Federal
reinsurance be provided to property-casualty insurers (and
joint underwriting facilities) without cost at least for an
initial ``economic recovery period'' (5-years subject to reset)
to allow further analysis of the forward-looking pandemic risk
and economic modelling in the affected lines of insurance. The
surveys by RIMS and other BCC member association reflect a
widespread and comprehensive interest in purchasing coverage
across industries and sectors of the economy. We would be
pleased to remain in touch with the Committee as BCC collects
more data and if possible, secures modelling for the potential
take-up rates.
Q.4. One effect we clearly saw from this pandemic is that not
all industries were affected equally.
Are there certain lines of insurance or industries that
will see cost increases or capacity retrenchment if Congress
does not establish a prospective pandemic risk insurance
program?
A.4. BCC believes that there has already been retrenchment,
indeed withdrawal, from the pandemic (or viral infection/
communicable disease) risk virtually across the board in
commercial property and casualty lines of insurance except
where prohibited by State law (e.g., mandatory coverage in
workers compensation). According to the RIMS survey cited
above, 98 percent of responding risk managers reported that
pandemic coverage is simply unavailable in the marketplace. And
this is not only in the business interruption line but also
most liability lines as well as contingency lines of insurance
such as event cancellation and film and television production
packages. Where limited coverage is still available, surveys by
RIMS, the National Restaurant Association, NAM, and other BCC
members, as well as the market reports by insurance brokerage
firms and rating agencies--show that terms of coverage have
tightened, limits have been reduced, deductibles raised as well
as significant price increases experienced. For example, as
early as April 2020, D&O insurers were reacting, in an already
hard market with an ``almost unprecedented'' imposition of more
restrictive terms, cuts in capacity and rate increases.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM L. CHARLES LANDGRAF
Q.1. Even though the U.S. has turned the corner on its
recovery, it's important to remember that the pandemic is still
ongoing and each month brings a wealth of new data and insight
to consider. For this reason, I'm hesitant for Congress to rush
to put a permanent pandemic solution in place when the story is
still only half written.
Since BCC initially released its pandemic risk framework
last summer, how has the changing recovery landscape influenced
your perspective on the way that those policies and programs
should be structured?
A.1. TRIA was enacted without Congress having any detailed
modelling or fine-tuned estimates of the worst-case cost of the
program that was being authorized. Similarly, Congress should
not now fail to act because models and detailed estimates of
hypotheticals are not yet available. Many benefits of the
proposal--immediate economic stimulus through business
confidence--will never be realized unless the program is
enacted, yet most of the supposed costs of covering insured
losses of this or a future pandemic will fall on Government no
matter what.
Q.2. With continued influx of new information related to the
impact of COVID-19 emergency and subsequent recovery, does your
organization still strongly believe in the necessity of a
formal federally backstopped insurance program?
A.2. Yes, as the economy struggles to recover, addressing the
protection gap is more urgent than ever. The insurance industry
did not wait to withdraw coverage in many lines that were
insured for this peril prior to march 2020. BCC members do not
intend to imperil insurers' solvency--our risk managers need
insurers to be strong and willing to cover many other risks in
addition to virus/communicable disease, but policyholders do
not have the luxury of saying, ``let's wait and study.'' Had
policy terms and conditions been frozen while study was
underway that might have been acceptable but the response to
the peril has been unilateral withdrawal by many insurers, not
by policyholders. Protestations of ``uninsurable''--even in
lines of business that have not produced significant losses to
date--sound similar to the reaction to terrorism risk
immediately after 9/11 and before enactment of TRIA. The public
policy response needs to be the same and as prompt again.
Q.3. If so, can you discuss the specific benefits that a
public-private approach--broadly speaking--would afford
policyholders, participating carriers, and taxpayers relative
to the preservation of the existing environment?
A.3. The economy operates more efficiently when well-protected,
by insurance, against fortuity. That's the essential premise of
commercial property-casualty insurance, and BCC members
certainly agree. Immediately prior to the onset of COVID-19,
much of the U.S. insurance industry's advocacy centered around
advancing public policy initiatives to close, both domestically
and aboard, the so-called ``protection gap,'' that is, the
difference between total losses and insured losses, or
alternatively, the difference between the amount of insurance
that is economically beneficial and the amount of insurance
actually purchased. See ``Addressing the Protection Gap:
Through Public/Private Partnerships & Other Mechanisms'',
Subcommittee Presentation to the Federal Advisory Committee on
Insurance, December 2019 Meeting, slide 3 for definition. As
insurance industry thought leaders have so often and so well
put it:
The protection gap, or those uninsured losses, is a
global problem and affects emerging nations and
developed countries alike. The problem . . . is that
properties and economies with high insurance
penetration recover much more quickly after a natural
disaster than properties that rely on Governments for
their recovery. (Emphasis added.)
Economies with high insurance penetration recover much more
quickly than [those] that rely on Governments for their
recovery. This maxim did not become inoperative as a result of
the pandemic. It is more true than ever before. And even though
the above quote refers to ``natural disasters'' (including, we
argue, virus), it is clear that the insurance industry's
protection gap advocacy has always embraced a wide array of
systemic and catastrophic risks to be addressed through public/
private partnership (collaborating to close the protection
gap), including cybersecurity, food crises, adverse
consequences of technological advances, and ``rising chronic
disease.'' See, e.g., the ``Global Macro Risk Map
Interdependencies'' (slide 3) here (Brazil, 2019).
Again, in April 2018, the insurance industry-funded Geneva
Association issued ``Understanding and Addressing Global
Insurance Protection Gaps,'' where it offered an ``updated
quantification of insurance protection gaps in the areas of
natural catastrophe, cyber, health care and pension risk,'' and
``potential remedies,'' including ``multistakeholder efforts''
such as ``public-private partnerships (PPs).'' Moreover, OECD
earlier this year effectively recognized the applicability of
this ``protection gap'' policy logic: ``Responding to the
COVID-19 and Pandemic Protection Gap in Insurance,'' March
2021. The OECD paper is particularly useful in cataloguing
initiatives in other developed countries.
The benefits of ``high insurance penetration'' would be
manifold in the case of the pandemic risk insurance program
recommended by BCC. As with TRIA, the most immediate and
tangible benefit is likely to not payment of claims--we hope
there is no pandemic recurrence in the nearterm--but rather the
unquestioned boost to economic recovery that comes from
properly risk-protected decision-making in the economy. On a
microeconomic level, TV and movie production that currently is
stalled (or going overseas) for lack of financing for lack of
insurance, would resume. Insurers, with the solvency protection
afforded by the program, would remain relevant to customers and
would be better positioned to meet rather than withdraw from
customer risk management needs and, indeed, to collaborate on
customer risk management strategies. Chubb CEO Evan Greenberg
recognized as much in his testimony in the Subcommittee's July
22 hearing.
Taxpayers would benefit in at least two ways: (1) the
underwriting process that would be supported by this public-
private partnership inevitably would involve risk mitigation
and shaping through underwriting terms and conditions; and (2)
keeping the insurance industry engaged means that, should there
be future triggering events, some of the losses will be borne
by the insurance industry's balance sheet, whereas if they
continue to make a wholesale retreat form the risk, all or a
greater proportion of future losses would borne by taxpayer
programs such as PPP or other emergency responses.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM L. CHARLES LANDGRAF
Q.1. What is the purpose of insurance? And what value do
insurers add to the small businesses and major employers with
whom they do business?
A.1. In a modern economy, commercial property and casualty
insurance is one of the essential tools for hedging risk that
allows economic players (investors, managers, workers,
professionals) to pursue economic activity and commitment with
a measure of confidence that fortuity--which itself cannot be
entirely eliminated--will not wipeout the value or fruits of
that endeavor. Traditional insurance is distinguished from some
other hedging devices by its attention to terms and conditions
which encourage risk-management by the insured whole also
avoiding moral hazard. Insurers add value for policyholders
small and large not only by sharing (pooling) the risk of
fortuity but by also bringing expertise to the customer to help
improve business practices for mitigation and to help shape the
financial product to meet the customer's particular needs.
Unlike other hedging devices, insurance also often avoids or
counters correlation with other market risks. When significant
gaps emerge in the protection available through insurance, each
of these benefits of the insurance mechanism is undermined.
That is the present situation to an ``almost unprecedented''
degree.
Q.2. Why should addressing gaps in insurance coverage be an
important priority for businesses of all sizes?
A.2. As the insurance industry itself has long argued, high
insurance penetration is correlates closely with economic
development and prosperity. The best insured societies are the
most economically and technically advanced and tend to be the
wealthiest. Significant gaps between asset value or business
activity level on the one hand and levels of insurance coverage
on the other hand tend to increase economic uncertainty and
impair confident or even rational decision-making in the
economy. Stark examples were provided immediately following 9/
11 when many construction projects in major metropolitan areas
were frozen for lack of financing because the terrorism risk
could not be covered. We believe similar examples are or will
emerge with respect to the lack of pandemic risk insurance
imposing a drag on economic activity. That's already abundantly
clear in the case of canceled trade shows and annual meetings,
the live entertainment industry, and as previously mentioned,
TV and movie productions that are not being financed
specifically because the production insurance is unavailable.
The lodging and hospitality sectors have been especially hard
hit not only by business downturn but also the inability to
plan and ramp up because of the unavailability of protection in
several lines of insurance. Risk managers from major
manufacturers have shared with Committee staff company-specific
examples of missing pandemic coverage in GL, EPL, and D&O
policies adversely impacting production capacity and operating
plans.
Q.3. How do you assess the current state of the commercial
insurance market? To what extent did the pandemic cause or
accelerate hardening in the market, and why?
A.3. We believe that among the hearing's witnesses, Marsh's
Martin South will be best positioned to provide the most
comprehensive data on the current market conditions. However,
the surveys conducted by several BCC member organizations, as
well as myriad anecdotal reports from risk managers and
insurance buyers, both large and small, within our coalition
confirm the extreme dysfunction of the insurance market for
pandemic risk insurance as well as the overall hard market
conditions which have resulted in a significant diminution of
available limits for many liens of liability insurance even
without any coverage of pandemic risk, at the same time that
rates have substantially risen and other coverage terms been
tightened. In some cases, e.g., media production packages, the
exclusion of pandemic risk together with other limitations have
made the insurance so inadequate that traditional financiers of
such production projects, no longer confident that the
production can go to completion, are unwilling to provide
financing.
Q.4. Notwithstanding explicit exclusions of pandemic-related
damages, do you assess that insurance coverage for business
interruption, event cancellation, and film production is more
or less available than it was prior to March 2020? Do you
assess that these lines of insurance coverage are more or less
affordable? Please elaborate and justify your response.
A.4. Dramatically less available. The degree to which business
interruption policies covered the pandemic-related cessation of
business is of course a matter of dispute. However, prior to
March 2020, event cancellation, film production and other forms
of contingency insurance were routinely quoted by underwriters
with specific inclusion (sometimes as an option) of viral
infection/communicable disease coverage. In other variations on
such contingency policies, it was not specifically excluded or
addressed. Now most such policies explicitly carry an explicit
viral/pandemic exclusion with no option to buy-back. Even
without that coverage, the remaining limits are often reduced
and the rate (price) is higher than before March 2020.
Q.5. Assuming a particular line of insurance can be written,
why is it important for insurers to bear some level of risk in
public-private partnerships?
A.5. The most successful Government-supported insurance
programs have been those that included some level of risk-
taking by the private insurance industry. In answers above, we
have mentioned the examples of TRIA, FCIC, and WDC. To that can
be added the Price-Anderson Act program for commercial nuclear
power industry which involves a commercial liability policy (on
mandate policy form) with an upper layer of mutualized
indemnity and Government excess commitment. In each of these
programs, private insurers have incentives to practice
disciplined underwriting and to bring risk-mitigation and
management expertise to their customers. In some of these
programs the terms and conditions of the original insurance
coverage is left to the private parties to shape with the
benefit of the Government backstop enhancing the feasibility
but not dictating the specific coverage.
Q.6. How do risk management incentives change for insurance
companies when they are required to bear some level of risk as
part of a particular insurance program, in contrast to
insurance programs in which they would bear no risk at all?
What implications would this have in ensuring effective program
administration and reducing waste, fraud, and abuse?
A.6. If the insurer shares in the profit or loss of the
business being issued through it, it will have real incentive
to underwrite responsibly--and responsively to the customer--
and to similarly manage claims. It is worth noting that even
the ``enemy attack'' program administered by the War Damage
Corporation during World War II--a supposedly ``uninsurable
war-on-land risk''--was within a few months of inception
quickly converted to a shared risk program in which the
participating private insurers were required to take a 10
percent share of both the risk of loss and profit under the WDC
program.
Q.7. Setting aside existing litigation, do you believe as a
policy matter that business interruption insurance can or
should cover pandemic-related damages? Why or why not?
A.7. Yes. There is no inherent reason for exclusion. We
understand the underwriter's desire to have a nexus between the
insured property location and the business activity or revenue
being insured against in the BI coverage. For one thing, the
underwriter presumably understands the location and therefore
to some extent scope of activity connected to the property. The
historical ``physical damage'' condition was intended to ensure
there was actually an interruption related to the property.
However, the availability (prepandemic) of contingent business
interruption coverage--for supply chain problems beyond the
property owners location or control, shows that there is no
inherent reason why the BI must be conditioned upon physical
damage at that location. So long as the triggering conditions
are sufficiently well-defined to allow proper underwriting,
physical damage need not be an inherent condition. The various
parametric proposals under current discussion would substitute
a tight definition of lock-down or other interruption of
activity for physical damage.
Q.8. There is concern that an inability to obtain adequate
business interruption, event cancellation, and film production
insurance could result in significant off-shoring of U.S.-based
film production. If you do not believe these lines of coverage
should cover pandemic-related damages, how would you propose to
address this issue and prevent off-shoring and loss of U.S.
jobs?
A.8. BCC believes that business interruption, event
cancellation, and film production insurance should cover
pandemic-related damages, and indeed did so in many cases prior
to March 2020. Some other jurisdictions, such as the U.K.,
Australia, and Canada, have been more proactive in providing
interim Government-supported insurance coverage or equivalent
security to film and television production since the initial
crisis last year. As a result U.S. media jobs and related
employment have been lost, not simply had deferred, as
productions moved elsewhere.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM L. CHARLES LANDGRAF
Q.1. We heard testimony comparing pandemic risk insurance to a
number of existing federally supported insurance programs. As
pandemic risk insurance is debated and considered, what are the
top lessons that we can carry over from other insurance
programs to a program that covers pandemic risk?
A.1. Some of the key lessons:
Programs which leverage both expertise and risk-
taking capacity (i.e., skin in the game) of the private
insurance industry have generally been the most
successful, such as TRIA, FCIC, and WDC (see above).
Flexibility in coverage design is essential in a
complex economy where insurance needs vary widely by
industry and sector; the TRIA model which backstops all
relevant lines of coverage but which leaves it to the
contracting parties to cover the peril under their
other bilateral ``terms and conditions'' should be
utilized.
Something like the Federal Crop Insurance Program's
menu of risk-retention options for insurers may be
appropriate for industry buy-in; in the BCC proposal we
also add a CEA-style joint underwriting option to
expand the risk appetite or aversions) addressed.
When private insurers are involved and have an
economic stake in the program, they have the ability to
incentivize and audit policyholders' own engagement in
risk management, such as the highly successful safety
protocols developed and deployed by the film and
television industry and unions. Something like the
post-9/11 SAFETY Act program for development of
technology and best practices could be fostered with
insurance sector involvement.
Q.2. One of the key successes of the Paycheck Protection
Program was the speed with which private sector lenders
distributed hundreds of billions of emergency funds to millions
of struggling small businesses all across America during the
height of the pandemic in 2020. Many small businesses faced
working capital constraints that made getting emergency funds
quickly critical to their survival. As pandemic risk insurance
is debated and considered, what design features can help ensure
that under insurance that covers pandemic risks, claims are
paid out as expeditiously as possible?
A.2. The private insurance industry can be extraordinarily
swift and efficient in distributing claims payments following a
catastrophe. The response to every major hurricane demonstrates
this. Certainly insurers, more than bankers, are geared to
exactly that sort of claim payment scenario. The issue here is
not the ability of the insurance industry to function
efficiently as a rapidresponse distributor of loss payments--
that is their expertise if not their raison d'etre. The only
issue here is their capacity/willingness to underwrite this
risk going forward and restore the semblance of protection and
``high insurance penetration'' on which a modern economy so
clearly depends--in advance of the payment incident.
Under the BCC proposal, for lines of coverage other than
nondamage business interruption (NDBI), traditional claims-
handling processes are likely to be sufficient to provide
appropriately prompt claims payout. With respect to the NDBI
line of coverage, a successful program (with high take-up rate)
in a major pandemic resulting in lock-down or reduced business
activity would need to utilize a parametric style product, at
least for the base policy, in order to process initial claim
payments on a timely basis without prior proof of loss.
Accordingly, the BCC proposal incorporates the parametric
policy features common to the Chubb, Zurich, and BCPP
proposals. We do not believe there is any substantial
disagreement on that aspect of the needed legislation.
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RESPONSES TO WRITTEN QUESTIONS FROM MARTIN SOUTH
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF
CHAIRMAN MENENDEZ FROM ROBERT GORDON
Q.1. APCIA, NAMIC, and Big I have proposed having the Business
Continuity Protection Program run by FEMA.
Can you elaborate on why you think FEMA is the best agency
to implement a program like this?
A.1. FEMA was originally identified to lead the BCPP in light
of its experience with administering disaster aid and recovery
programs. However, shortly after the public release in May
2020, the BCPP was amended to have the Department of the
Treasury administer the program. The Treasury Department is
where most programs that delivered financial aid to businesses
during the recent pandemic were located. Additionally, Treasury
is able to coordinate with the IRS to conduct verifications and
audits as needed to account for the proper use of funds. The
Treasury Department can build on its experience in providing
emergency economic assistance and stimulus in supporting this
program.
Q.2. What kind of talent and resources would an agency need to
run a program like this? Actuaries with expertise in pandemics?
A.2. The Department would need considerable expertise in a
range of fields to manage an economic relief and stimulus
program of this scale and scope. Initially, a liaison between
the private administrators and sellers of the product would
need to be established. Computer technology staff (e.g.,
programmers, analysts) would be key since the idea is to
automate the administration of such a program to the greatest
extent possible to handle millions of transactions
simultaneously when the program is triggered. Additionally, the
Department would need assistance making calculations to ensure
it meets the goals established by policymakers regarding take-
up rates and affordable pricing (e.g., financial analysts).
Q.3. The Business Continuity Protection Program seems like a
modified version of the Paycheck Protection Program (PPP), with
insurers playing the role of lending institutions and FEMA the
role of the Small Business Administration (SBA).
What lessons did APCIA take from the PPP roll-out, mistakes
made, and feedback from small businesses into the Business
Continuity Protection Program framework?
A.3. The PPP program had many successes including getting
needed funds to businesses in order to tide them over until
consumer demand and activity began to resume. Setting up the
BCPP in advance of a pandemic allows policymakers to take the
positive outcomes learned from the PPP and make them better.
Targeting certain industries (i.e., travel and leisure and/or
hospitality) will allow for assistance to be provided to those
who would be most affected by the effects of the individual
pandemic. Preplanning through the BCPP allows the program
administration to include checks and balances to reduce fraud
and abuse.
Q.4. One issue we'd need to address in any solution is how to
ensure a pandemic insurance product is accessible and
affordably priced so that we have widespread adoption among the
business community. That could help balance the risk pool to
ensure that the program could cover losses that may be
restricted to one part of the country or perhaps a particular
industry where social distancing or other preventative measures
are hard to implement.
What are your estimates of take-up under your proposals?
A.4. The BCPP is designed with the flexibility to achieve the
targeted take-up rates established by policymakers, with the
program able to provide relief to businesses no matter the
take-up rates. The nimbleness of the BCPP in providing
policymakers a mechanism to achieve their desired take-up rates
is one of the central and attractive features of the proposal.
Q.5. What is the minimum take-up rate that would be needed to
cover the claims your plans envision?
A.5. Because the BCPP is a Government program that is based on
flexibility to allow for benefits no matter the take-up rates,
there is no minimum take-up rate needed for participating
businesses to receive relief from economic losses to future
pandemics. However, the BCPP is designed to achieve the take-up
rate goals of policymakers to protect the economy and reduce
the need for postdisaster assistance; it is not intended to be
actuarially self-supporting, which would render the product
unaffordable.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM ROBERT GORDON
Q.1. Even though the U.S. has turned the corner on its
recovery, it's important to remember that the pandemic is still
ongoing, and each month brings a wealth of new data and insight
to consider. For this reason, I'm hesitant for Congress to rush
to put a permanent pandemic solution in place when the story is
still only half written.
Since APCIA initially released its pandemic risk framework
last summer, how has the changing recovery landscape influenced
your perspective on the way that those policies and programs
should be structured?
A.1. There have been many lessons learned since the beginning
of the COVID-19 crisis as the global crisis stretched far
beyond widespread expectations and the full impact on the
economy became apparent. In fact, the full economic, health and
societal impacts are continuing to evolve. As we approach the
eighteenth month of the declared pandemic, it is apparent that
economic losses are primarily caused by a plunge and shifts in
consumer demand for in-person services, not physical damage to
premises or by Government-ordered closures. Losses have been
highly concentrated in certain sectors, such as leisure,
hospitality, food services, and transportation--creating harm
disproportionately to minorities, women, and low-income workers
and business owners. Federal Government relief and fiscal
stimulus have been extremely successful in stabilizing the
economy. Building on and improving current Government programs
that can be flexible and adjusted in the next pandemic will
provide much more efficient and effective protection.
Based on the lessons learned to date, the BCPP framework is
a program that would address the needs of participating
businesses by getting relief and stimulus funding to their
hands promptly.
In July, 2021, the Committee on Capital Markets Regulation
(CCMR) stated that ``the most effective pandemic insurance
scheme may be to: (i) establish a modest BCPP program that
offers immediate relief at the onset of a pandemic; and (ii)
supply any further Government support as necessary through a
more streamlined version of the PPP and a more generous version
of the MSLP employed in 2020.'' (Committee on Capital Markets
Regulation, Pandemic Business Interruption Insurance, July,
2021, accessed at: https://www.capmktsreg.org/wp-content/
uploads/2021/07/CCMR-Pandemic-Insurance-07.01.2021.pdf)
Similar to the CCMR analysis, Rand Corporation also
completed a study in 2021 which concludes that ``for small and
medium-sized firms, the Business Continuity Protection Program
approach performs best in terms of affordability, efficacy, and
efficiency . . . For large firms, the Business Continuity
Protection Program also performs best in terms of
affordability, efficacy, and efficiency.'' (Dixon L., Morikawa
J., Improving the Availability and Affordability of Pandemic
Risk Insurance, 2021, Rand Corporation, accessed at: https://
www.rand.org/pubs/research--reports/RRA1223-1.html)
Q.2. With continued influx of new information related to the
impact of COVID-19 emergency and subsequent recovery, does your
organization still strongly believe in the necessity of a
formal federally backstopped insurance program?
A.2. Pandemic mass market business continuity risks are
inherently uninsurable. Insurers are in the business of
managing risk, so companies always seek to provide protection
solutions for consumers when feasible. However, insurers can
only commit capital responsibly if they can accurately model
the frequency and severity of a risk and adequately diversify
potential solvency exposures--which is not feasible with
respect to the widespread economic consequences of a global
pandemic. Addressing macroeconomics is the role of Government.
Policymakers can preplan to provide economic relief or
postevent on an ad hoc basis as has been done successfully in
the current crisis.
Q.3. If so, can you discuss the specific benefits that a
public-private approach--broadly speaking--would afford
policyholders, participating carriers, and taxpayers relative
to the preservation of the existing environment?
A.3. A public/private approach will not work as the insurance
industry is not equipped to provide coverage for pandemics. The
appropriate response to an economic downturn and preservation
of the existing economic environment during a pandemic is a
nimble and efficient economic relief and stimulus program, as
envisioned in the BCPP proposal.
The issues affecting businesses are multifaceted and one
solution will not fit all businesses in any effort to stabilize
the economy. There will likely be multiple layers of losses
resulting from a pandemic. As we see from the current pandemic,
these include record unemployment in particular industries,
cash flow crises for transitioning businesses, solvency threats
from plunging demand for in-person services, new costs and
shifts in business models due to Government restrictions, and
supply chain dislocations and losses. There are also specific
types of pandemic risks and losses that are particularly suited
to a Government relief program, these include sickness and
mortality, liability losses, event cancellation, entertainment
production, key person losses, worker health, and travel
disruption.
While the negative effects of the plunge in consumer demand
for in-person services had a broad and disruptive impact on
economic activity, there were two industries most notably
impacted by the downturn: hospitality/leisure and traditional
retail establishments, such as clothing stores. (Source: Bureau
of Labor Statistics.) Much of the unemployment spike is
attributed to these industries. Other industries were also
impacted, either because they were part of the supply chain for
the hospitality/retail or wholesale/retail businesses, or they
were nevertheless impacted by the unanticipated change in
consumer behavior. There were some industries that were able to
respond to the shifts in consumer needs and maintain their
levels of profitability. Some industries even managed to grow
during the pandemic.
A primary form of loss mitigation for businesses was
through employee layoffs and furloughs. As seen by the initial
and ongoing Federal response to the pandemic, it is a primary
policy goal of the Federal Government to avoid economic
dislocation for those workers and to return those workers to
payrolls promptly. The BCPP serves this central Government
policy goal by seeking to encourage employers to maintain
employee payrolls.
The BCPP is a Government-centered solution that would use a
parametric trigger to provide timely, effective, and affordable
Government relief for business continuity losses. The BCPP is
the only U.S. proposal with broad insurance industry support.
Participation would be voluntary for businesses and insurers.
The Government would subsidize the program sufficiently to
encourage adequate take-up rates, protecting 80 percent of
payroll and operating expenses for a business for up to 3
months. The insurance industry would provide distribution,
education, and loss control expertise. The BCPP also has
special provisions for a private-public backstop that could
grow over time to provide excess coverage.
The BCPP would assist businesses in temporarily keeping
workers on employer payrolls, thereby keeping them off the
unemployment rolls and thus facilitating a more rapid
transition to recovery. Those employees would maintain their
purchasing power, pay their rent and utilities, and buy food
and other necessities, thus reducing the demand for additional
Government assistance. Similarly, businesses would be able to
pay their operating expenses including rent or mortgage,
utilities, and suppliers. The Government would be able to
decide which economic sectors need the program's support,
offering targeted assistance that would be impactful.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ROBERT GORDON
Q.1. What is the purpose of insurance? And what value do
insurers add to the small businesses and major employers with
whom they do business?
A.1. Insurance protects individuals, families, and businesses
against financial harm from liability, property, and casualty
risks. Insurance companies are unique businesses in that they
protect their customers--unrelated policyholders--with a
promise to pay in the future in the event of an insured loss.
That promise to pay is supported by the capital of the
insurance company and subject to strict regulation at State and
country levels.
The insurance industry is divided into two major segments:
property and casualty (P/C), also known as general insurance or
nonlife, particularly outside the United States, and life/
health. Broadly speaking, property/casualty policies cover
homes, autos and businesses; life/health insurers sell life,
long-term care and disability insurance, annuities and health
insurance. U.S. insurers submit financial statements to State
regulators using statutory accounting principles.
While insurance provides several vital benefits to
businesses, the purpose of insurance is not to provide
financial protections for every risk. In fact, many forms or
risk are not able to be insured. With insurance fundamentally
based on the ability to spread risk amongst differing risk
profile groups, not every risk is intended or meant to be
insured. For example, the National Association of Insurance
Commissioners (NAIC) stated in March of 2020 that,
Insurance works well and remains affordable when a
relatively small number of claims are spread across a broader
group, and therefore it is not typically well suited for a
global pandemic where virtually every policyholder suffers
significant losses at the same time for an extended period.
While the U.S. insurance sector remains strong, if insurance
companies are required to cover such claims, such an action
would create substantial solvency risks for the sector,
significantly undermine the ability of insurers to pay other
types of claims, and potentially exacerbate the negative
financial and economic impacts the country is currently
experiencing. (National Association of Insurance Commissioners,
NAIC Statement on Congressional Action Relating to COVID-19,
https://content.naic.org/article/statement-naic-statement-
congressional-action-relating-covid19.htm)
Q.2. Why should addressing gaps in insurance coverage be an
important priority for businesses of all sizes?
A.2. Businesses face a plethora of ongoing, evolving, and
emerging risks, only a fraction of which are typically covered
by insurance. For example, private insurance does not generally
provide protection against macroeconomic events, such as
economic downturns, technological obsolescence or shifts in
consumer demand such as evidenced as the primary form of loss
in the current COVID-19 pandemic. Private insurance typically
is available for individualized perils, such as natural
disasters that hit a particular region or the liability
incurred by a particular company for covered perils. Insurance
companies, agents, and brokers can help companies and their
risk managers explore what insurance coverages might be
available for insurable risks and what specific policies
include as covered perils.
Q.3. How do you assess the current state of the commercial
insurance market? To what extent did the pandemic cause or
accelerate hardening in the market, and why?
A.3. The commercial insurance market remains robust and
competitive. Businesses have routinely been found to be able to
purchase relevant commercial insurance for privately insurable
risks in an affordable manner. The insurance industry exists to
protect their business customers during their time of need.
That said, the current market is experiencing firming rates due
to rising loss costs as well as rebounding demand for insurance
products in 2021 resulting from a steadily improving economy
coming out of the crisis stage of COVID-19. There has also been
an increased adoption and broadening of exclusions for
communicable diseases in many primary and reinsurance policies.
This trend is explained in ``Consumer Behavior, the
Macroeconomy, and the Uninsurability of Pandemic-Related
Business Income Losses'', published September, 2021. (Hartwig,
R., Gordon, R., Eisenhuth, R., ``Consumer Behavior, the
Macroeconomy, and the Uninsurability of Pandemic-Related
Business Income Losses'', American Property Casualty Insurance
Association, September, 2021, accessed at: https://
www.ncsl.org/documents/econ/APCIA-Hartwig-Gordon-White-
Paper.pdf)
Commercial insurance operates as a global marketplace and
the pandemic caused global losses, which included a significant
drop in policyholder surplus. Based on current loss data and
projections, COVID-19 will be the largest loss event in
history, even with communicable disease losses not being
covered in policies such as business interruption.
Additionally, many of the long-term impacts of the current
pandemic are still unknown. Because of this, the COVID-19
pandemic has played a role in the hardening of the commercial
insurance market. If commercial insurers were to be required to
take on more economic risk associated with future pandemics,
the impact seen from COVID-19 would pale in comparison to the
constriction and hardening that would be seen due to serious
solvency risks to the industry at large.
Q.4. Notwithstanding explicit exclusions of pandemic-related
damages, do you assess that insurance coverage for business
interruption, event cancellation, and film production is more
or less available than it was prior to March 2020? Do you
assess that these lines of insurance coverage are more or less
affordable? Please elaborate and justify your response.
A.4. Commercial insurance and reinsurance rates have been
rising significantly across the globe for several years, with
particular recent increases in lines such as cyber and property
catastrophe insurance. Insurance rates are being heavily
impacted by spiking inflation, supply chain bottlenecks,
structural labor deficiencies, and other factors. Insurance
capital is also being pressured by increasing climate change
related exposures. Business interruption insurance is broadly
available, although rates have increased and, in some cases,
underwriting standards have tightened. Industry statistics are
not readily available for the event cancellation insurance
marketplace or performance insurance for film production, but
those market are clearly in transition with some hardening and
a few market exits, although partially offset by new entrants
and capital.
APCIA produces biannual reports on property-casualty
industry financial operating trends and has produced recent
whitepapers analyzing insurance input inflation trends that we
would be happy to provide. We would also be pleased to provide
informal updates on the event cancellation insurance
marketplace, which is undergoing significant transition,
particularly with the unknown trajectory of the current
pandemic and emerging coronavirus variants.
Q.5. Assuming a particular line of insurance can be written,
why is it important for insurers to bear some level of risk in
public-private partnerships?
A.5. Imposing pandemic risk responsibility on insurers through
a public-private partnership will be extremely harmful to the
industry and the overall business community. Forcing insurers
to offer the coverage that is inestimable will result in
limited availability of any product, unaffordability to
businesses, and an undermining of the industry's ability to
cover other risks. It will lead to withdrawal from markets and
solvency risks for insurers. Dr. Robert Hartwig and I have
published two papers discussing the uninsurability in the
private market of mass market pandemic business continuity risk
that provide more explanation, ``Uninsurability of Mass Market
Business Continuity Risks from Viral Pandemics and Consumer
Behavior, the Macroeconomy, and the Uninsurability of Pandemic-
Related Business Income Losses''. (Hartwig, R. and Gordon, R.,
``Uninsurability of Mass Market Business Continuity Risks from
Viral Pandemics'', American Property Casualty Insurance
Association, June 2020. Accessed at: http://www.pciaa.net/docs/
default-source/default-document-library/apcia-white-paper-
hartwig-gordon.pdf. Hartwig, R., Gordon, R., Eisenhuth, R.,
``Consumer Behavior, the Macroeconomy, and the Uninsurability
of Pandemic-Related Business Income Losses'', American Property
Casualty Insurance Association, September, 2021, accessed at:
https://www.ncsl.org/documents/econ/APCIA-Hartwig-Gordon-White-
Paper.pdf)
Q.6. How do risk management incentives change for insurance
companies when they are required to bear some level of risk as
part of a particular insurance program, in contrast to
insurance programs in which they would bear no risk at all?
What implications would this have in ensuring effective program
administration and reducing waste, fraud, and abuse?
A.6. In a Government program, policymakers establish the goals
and program incentives, such as maintaining employment. Private
sector goals may not align. For example, during the current
COVID-19 pandemic, some private sector experts stated that the
most effective mitigating factor that businesses could
implement is preventing or significantly limiting direct human
interaction. For businesses, the simplest means of addressing
this issue was to lay off employees, which is not a positive
public policy goal sought by anyone, including insurers. This
dilemma highlights that traditional mitigation efforts
undertaken by the private sector and insurance industry may not
support economic stabilization and other public policy goals in
the case of a pandemic.
Q.7. Setting aside existing litigation, do you believe as a
policy matter that business interruption insurance can or
should cover pandemic-related damages? Why or why not?
A.7. Business interruption insurance is a commercial property
coverage that only provides coverage where there is an impact
on operations due to direct physical loss from a covered peril
or damage to property, such as the destruction of property by
fire or tornado. This coverage is intended to protect
businesses while they repair the damage. It does not cover, and
was never intended to cover, business interruption losses
unrelated to physical property damage. Businesses across the
country rely on the specific protection provided under these
policies as they recover from devastating disasters and
unfortunately circumstances. To have these policies cover
pandemic-related damages would significantly limit the
availability of the underlying and current protections
provided, leaving countless businesses financially unprotected.
Q.8. There is concern that an inability to obtain adequate
business interruption, event cancellation, and film production
insurance could result in significant off-shoring of U.S.-based
film production. If you do not believe these lines of coverage
should cover pandemic-related damages, how would you propose to
address this issue and prevent off-shoring and loss of U.S.
jobs?
A.8. If the Government decides that protecting the film
production industry is a priority, the insurance industry is
prepared to help the Government to help design policies to
support this goal. The BCPP provides the Government with a
mechanism to accommodate the film production industry, both in
the primary layer of protection provided by the Government; and
through the public-private partnership allowed in secondary
layers of excess protection.
The film and television industry and the theatrical
industry have been especially impacted by the pandemic along
with other industries, such as hospitality and leisure. The
pandemic is disrupting theatrical performances and film and
television production sets all over the world, not just in the
United States. This is important as the exclusion of
communicable diseases in business interruption, event
cancellation, and film production insurance policies is also
not limited to only the United States. While other countries
are similarly looking to address these issues through
Government programs, production companies will likely find
coverage for these efforts even outside of the United States
hard to obtain.
It is important to note however, that the film, television,
and stage production industry is among the leaders in
responding to the health crisis that we have seen as a result
of COVID-19. The Screen Actors Guild has agreed to support
producers' risk management practices on sets in order to
reduce/eliminate COVID-19 among actors and set workers.
Individual companies such as Netflix have implemented a
mandatory vaccination policy for anyone in close proximity to
actors before, during and after performances or production
activities. By adhering to strict risk mitigation techniques
such as these, the production companies have, and will continue
to, effectively lower their loss exposures to potential
insurers. (WSJ 7/30/2021)
Theatrical performance disruption and production
interruption insurance continues to be available in the
marketplace, although insurers are not underwriting pandemic
exposures due in part to the lack of reinsurance currently
available for those exposures.
The event cancellation insurance market has seen some
companies withdraw but others enter the market. Coverage is
available; however, capacity has been reduced due to pandemic-
related claims, which are now excluded from coverage. (Business
Insurance, June 1, 2021)
Q.9. The American Property Casualty Insurance Association, the
National Association of Mutual Insurance Companies, and the
Independent Insurance Agents and Brokers of America jointly
proposed establishing the Business Continuity Protection
Program (BCPP). The program would require coverage to be
purchased at least 90 days prior to a Presidential declaration
of a public health emergency, which would automatically trigger
revenue replacement assistance. What moral hazard is addressed
by this 90-day requirement? Is there precedent in other lines
of insurance that would suggest that 90 days is appropriate to
avert moral hazard?
A.9. The 90-day requirement in the BCPP was included to prevent
``adverse selection'', which is where only those who
immediately need the protection purchase the insurance. This
requirement also would encourage long term participation in the
program and ensure and assist in the prompt payment under the
program.
Policymakers may decide that 90 days participation by
businesses is too long or too short to prevent abuse and gaming
of the system. Some waiting period may be necessary, however,
to prevent businesses from purchasing the protection at the
last possible moment. APCIA would be pleased to provide
examples of existing Government protection programs with
waiting periods.
Q.10. In response to COVID-19, former President Donald Trump
declared a public health emergency on March 25, 2020, which
under the BCPP would trigger assistance to all participants
nationally. Assuming 100 percent participation in the BCPP on
March 25, 2020, approximately how much would this program have
cost the Federal Government before accounting for collected
premiums?
A.10. The BCPP allows for targeted and tailored assistance to
be provided based on the impact to specific business sectors
and based on the coverage amounts elected to be purchased by
the individual businesses. In other words, the cost to the
Federal Government depends on how broadly policymakers apply
the program safety net.
Under the BCPP, it would be up to Federal policymakers and
the program administrator to determine in advance how much
coverage to extend to which sectors. Over the past 18 months,
Congress has provided $5.7 trillion in pandemic relief and
fiscal stimulus with additional relief still needed and being
considered. Roughly $483 billion in essential relief was
provided through the Paycheck Protection Program (PPP) and
Health Care Enhancement Act, although overall business
continuity losses were certainly much greater. APCIA strongly
supports the trillions of dollars in macroeconomic
stabilization provided by Congress and the Administration and
has suggested the BCPP as one approach to improving the PPP by
establishing the program in advance of the next pandemic.
Q.11. In designing the BCPP, what assumptions did you make in
pricing coverage? Can you provide examples of approximately how
much coverage could cost for a typical small business?
A.11. The BCPP is structured to begin with policymakers
establishing a desired take-up rate for businesses purchasing
protection. This desired take-up rate would then dictate the
pricing and corresponding Government subsidization needed to
make the protection affordable enough to be achieved.
When the BCPP was designed, it was assumed that the
program's administrator would determine rates based on each
participant's anticipated expenses and the percentage of
assistance a business is seeking. Some basic modeling, using a
variety of assumptions, and considering significant Federal
Government subsidies put the cost at 1-2 percent of the
protection amount purchased.
Example: Assume a business's payroll, benefits, and
operating expenses are $300,000 per month, for total exposure
of $900,000 (3 months). Also, assume the business owner wants
80 percent coverage = $720,000. A 2 percent annual cost will be
$14,400, and 1 percent will be $7,200.
Example: Assume a business's payroll, benefits, and
operating expenses are $90,000 per month, for total exposure of
$270,000 (3 months). Also, assume the business owner wants 80
percent coverage = $216,000. A 2 percent annual cost will be
$4,320, and 1 percent will be $2,160.
Example: Assume a business's payroll, benefits, and
operating expenses are $300,000 per month, for total exposure
of $900,000 (3 months). Also, assume the business owner wants
50 percent coverage = $450,000. A 2 percent annual cost will be
$9,000, and 1 percent will be $4,500.
Q.12. How does this cost of coverage under the BCPP align with
a typical small business's willingness to pay for such
coverage?
A.12. The BCPP is designed to meet Government's desire for
affordability and an adequate take-up rate. The cost of the
program to small businesses will need to be analyzed to
determine what pricing level will achieve desired take up
rates, and thus the corresponding level of Government subsidy
needed to be provided.
Q.13. In designing the BCPP and in modeling overall cost, what
expenses were considered operating expenses?
A.13. The BCPP provides significant flexibility to the program
administrator to adjust pricing based on the established public
policy goals. Assumptions are made that ``operating costs'' are
that part of the reimbursable expenses to businesses under the
program. These would ultimately be determined by the program
administrator, however, for discussion purposes the operating
expenses considered would be profit/loss statement line items
such as rent, utilities, taxes, license fees, other necessary
professional fees, maintenance and repairs, insurance, and
other costs directly related to running the business.
Nonoperating costs not reimbursable under the program may
include amortization, depreciation, interest expense, and any
other costs indirectly related to the business's operations.
Q.14. Under the BCPP, what solution would you suggest for new
businesses who purchase coverage outside the 90-day window and
are therefore eligible for revenue replacement assistance but
do not yet have a tax return on file with the IRS?
A.14. The administrator is provided flexibility to accommodate
new businesses that wish to enroll in the program. For example,
a new business could be required to provide their pro forma,
which provides the date of establishment, their expected
revenues and expenses, that could be audited following payment.
Q.15. Under the BCPP, if a business certified they would ``use
[ . . . ] any funds received for retaining employees and paying
necessary operating expenses and that they will follow
applicable Federal pandemic guidance'' and then acted in
contravention to that certification, what legal consequences or
recourse would there be?
A.15. The program administrator would establish processes to
audit how distributed funds are used and set rules and
regulations regarding return of unused funds or penalties for
improperly used funds. Any participating business found to have
knowingly defrauded the program would be subject to stringent
penalties. The program administrator is granted claw back
authority to require the return of benefits not applied by the
business to allowable expense categories. Under 18 U.S.C.
Section 1001, it is a felony to make a ``false statement'' to
an agent or agency of the Federal Government in connection with
a Federal matter; and the legal consequences or recourse
available under this statute would presumably be fully
applicable to false statements made under the BCPP.
Q.16. Under the BCPP, if a business certified they would
``follow applicable Federal pandemic guidance'' as required by
the program and then were found to have acted in contravention
to that certification, what legal consequences or recourse
would there be?
A.16. As stated above, false statements involving a Federal
matter can be felony offenses.
Q.17. Under the BCPP, if a business attested that relief
assistance would ``be used to retain employees and keep the
business viable'' as required by the program and then were
found to have acted in contravention to that attestation, what
legal consequences or recourse would there be?
A.17. Participants would pledge to use benefits only for
permissible expenses. The program administrator would establish
processes to audit how funds were used and set rules regarding
return of funds or penalties for improperly used funds. Any
participating businesses found to have knowingly defrauded the
program will be subject to stringent penalties, including
potential removal from the program, criminal penalties, and
financial repercussions. The program administrator should be
granted claw back authority to require the return of benefits
not applied to allowable expense categories. As stated above,
false statements involving a Federal matter can be felony
offenses.
Q.18. The BCPP would give FEMA the authority to consider
purchasing reinsurance from payments received. Why is this
option important in designing lines of insurance coverage with
substantial Federal Government involvement?
A.18. Shortly after the initial presentation of the BCPP in
2020, the proposal was amended to have an Administrator run the
program within the Department of the Treasury. To the extent
there will be a desire in the private sector to insure pandemic
risks, it will likely occur in the reinsurance market, due to
the more global nature of reinsurance and the ability to spread
risk not only over more diverse geographic areas but over
different lines of risk and extended period of years.
Reinsurance and other financial instruments such as catastrophe
bonds or insurance linked securities would allow Treasury to
lessen and offload some of the financial burdens of a
Government pandemic response program to the private sector
which would in turn could lower the costs to both participating
businesses and the general taxpayers.
Q.19. Why do you believe FEMA is the appropriate agency to
administer the BCPP?
A.19. FEMA was originally identified to lead this program in
light of its experience with administering disaster aid and
recovery programs; however, shortly after the public release in
May 2020, the BCPP was amended to have the Department of the
Treasury administer the program. The Treasury Department is
where most programs that delivered financial aid to businesses
during the recent pandemic were located. Additionally, Treasury
is able to coordinate with the IRS to conduct verifications and
audits as needed to account for the proper use of funds. The
Treasury Department can build on its experience in providing
emergency economic assistance and stimulus in supporting this
program.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ROBERT GORDON
Q.1. We heard testimony comparing pandemic risk insurance to a
number of existing federally supported insurance programs. As
pandemic risk insurance is debated and considered, what are the
top lessons that we can carry over from other insurance
programs to a program that covers pandemic risk?
A.1. Insurers are in the business of managing risks and always
seek to provide risk management solutions to consumers.
However, not every risk has an insurance solution. Pandemic
business continuity risks were never contemplated nor ever
intended to be covered by the private sector. Insurance works
well when a small number of claims are spread across a broad
population of risks. Therefore, a global pandemic is not suited
to cover virtually all policyholders who have suffered
significant losses at the same time for a significant period.
It has been suggested that terrorism risk is similar to
pandemic risk. These comparisons are inaccurate as pandemic
risks are fundamentally different than terrorism risks. If
pandemic insurance legislation modeled after the Terrorism Risk
Insurance Act (TRIA) were enacted, the Government would likely
fail to address the economic issues caused by pandemics. Prior
to the September 11th, 2001 terrorist attacks, most commercial
insurance did not exclude coverage for losses resulting from
terrorism and therefore most loses were covered. Therefore,
TRIA was enacted into law to normalize and sustain the
terrorism insurance markets that effectively already existed
but began to constrict. Conversely, there has never been an
insurance market for widespread economic losses due to
pandemics. Additionally, unlike TRIA where a concentrated risk
can be spread across policyholders and thus made affordable
(and sometimes even offered at no cost), pandemics impact all
businesses, making the cost prohibitively high for small
businesses and, in many instances, larger organizations as
well. Using a TRIA structure that was never intended to create
a new insurance market would not be appropriate to create an
insurance market for a risk that is fundamentally uninsurable.
The National Association of Insurance Commissioners (NAIC)
stated in March of 2020 that, Insurance works well and remains
affordable when a relatively small number of claims are spread
across a broader group, and therefore it is not typically well
suited for a global pandemic where virtually every policyholder
suffers significant losses at the same time for an extended
period. While the U.S. insurance sector remains strong, if
insurance companies are required to cover such claims, such an
action would create substantial solvency risks for the sector,
significantly undermine the ability of insurers to pay other
types of claims, and potentially exacerbate the negative
financial and economic impacts the country is currently
experiencing. (National Association of Insurance Commissioners,
NAIC Statement on Congressional Action Relating to COVID-19,
https://content.naic.org/article/statement-naic-statement-
congressional-action-relating-covid19.htm)
Q.2. One of the key successes of the Paycheck Protection
Program was the speed with which private sector lenders
distributed hundreds of billions of emergency funds to millions
of struggling small businesses all across America during the
height of the pandemic in 2020. Many small businesses faced
working capital constraints that made getting emergency funds
quickly critical to their survival. As pandemic risk insurance
is debated and considered, what design features can help ensure
that under insurance that covers pandemic risks, claims are
paid out as expeditiously as possible?
A.2. Pandemics are inherently uninsurable, and therefore a
program based on the traditional insurance structure would not
be effective. A response to a plunge in macroeconomic activity
and subsequent relief to affected businesses and workers is the
role of the Government. However, while an insurance model would
not be appropriate, insurers do believe that we could provide
added benefits in administering, specifically in the
distribution context, a Government response program.
Building on the success of the quick distribution of funds
under the PPP, the BCPP provides automatic relief through a
parametric trigger with no claims adjustment required. A State
considering a closure would ask the President to make a viral
emergency declaration and relief could be targeted to impacted
industries and jurisdictions. The Presidential declaration
would specify which types of businesses are partly or fully
closed (using business categorization under the North American
Industry Classification System (NAICS). For example, the
President could indicate that restaurants are 50 percent
closed, and they would receive \1/2\ payments without having to
prove direct losses. The program is designed to encourage
businesses to adjust their business model or delivery systems
in address impacted portions of their operations.
However, in order for this automated distribution of funds
to work, it will require substantial preidentification and
coding of the participants within the program. That is where we
believe that insurers, through our ongoing engagement with our
commercial and small businesses, could be helpful.
Additional Material Supplied for the Record
LETTER FROM THE COUNCIL
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER FROM NAIC
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STATEMENT OF NAMIC
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STATEMENT OF PIA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER FROM ICSC
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STATEMENT OF IIABA
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