Chubb Group Pandemic Insurance Plan
| Edward M. Kraine
The Chubb Group of Insurance Companies, one of America’s premier carriers, announced on July 8th an interesting and appealing outline of risk and insurance to replace the much-maligned payroll loan programs of the federal government.
In response to COVID-19, the U.S. Government loaned trillions of dollars to businesses with the primary intent of continuing payroll expenses, thus keeping workers paid and businesses afloat during the resulting financial crisis.
Because of clogged websites and other disruptions, most of the initial money flowed to large and very large businesses who have other means of raising capital as most do not rely on daily cash flow to support their overall activities.
The fact that some of the debt could be forgiven was a huge incentive for any business to gain access to these “loans”.
The new Chubb Group plan seeks to eliminate this distortion by using a two-part scenario, based on the size of participating businesses by using the number of employers as a measure. The Chubb Group outlines a public – private partnership in place before the next pandemic that recognizes the differing needs of small and large businesses. Here are the key elements:
For Small Businesses – Business Expense Insurance Program (BIP)
The objective is to provide immediate cash to small businesses so that they can continue to pay employees and ongoing business expenses, thereby limiting economic disruption.
- In the event of a government-declared pandemic and ensuing lockdowns, insured businesses with 500 or fewer employees will receive a pre-determined payment based on a multiple of monthly payroll expenses. This simple structure provides for an accelerated claims payment process.
- Following the declaration, payments will be made promptly and efficiently leveraging the industry’s existing claims expertise after a waiting period.
- All Property & Casualty insurers currently writing business insurance must offer the program to small businesses. Businesses that decline the coverage must acknowledge they will not be covered for pandemic business losses or be eligible for federal program benefits. This opt-out is intended to encourage broad participation.
- The program will be affordable for small businesses. This reflects the reality that only the federal government has sufficient resources to meet the full extent of pandemic loss, which is not insurable in the private sector.
For Medium and Large Businesses – Pandemic Re
Available to businesses with more than 500 employees, Pandemic Re is an indemnity-based program in which both the insurance industry and the government are paid an appropriate risk-adjusted price for pandemic coverage.
- Participation by businesses and insurers is voluntary. Participating insurers retain a portion of each risk and reinsure the rest to Pandemic Re.
- The business interruption coverage would be written on modified standard industry forms, providing payment for business expenses with a maximum payout of $50 million.
- Insurers collect 100% of the premium, retain their proportional share and cede the balance to Pandemic Re for government share. Insurers pay the claims.
This private public partnership is not unusual after major catastrophes, where only the federal government has the resources to fund the potential losses. Numerous federal/private programs are in place, including:
- TRIA (Terrorism Risk Insurance Act) – funded after the 9-11 twin tower disaster.
- Federal Flood Program – funded initially in 1972 to help identify and insure properties in flood prone areas.
- Federal Riot Reinsurance Act – enacted after the numerous inner-city riots in the 1960’s and 1970’s.
In addition to the Chubb plan, various other Pandemic solutions have been brought forward:
- BCCP (Business Continuity Protection Program) – an effort by lobbying groups behind a proposed federal program which would allow businesses to replace up to 80% of payroll. The program would be run by FEMA.
- The American Academy of Actuaries and Brokers – Marsh supports a federal reinsurance backstop modeled after TRIA.
The Fedeli Group will keep you informed as all these financial plans develop. However, in the interim, please call or email us with any questions or comments.