National Restaurant Association Supports Proposal to Create Insurance Backstop for Pandemic Risk

Washington, D.C. – Businesses large and small plan for the known and insure against the unknown. This year, the on-going pandemic exposed weaknesses in several fundamental lines of insurance. To help address market inadequacies before it stifles further recovery, the National Restaurant Association recently joined with a broad range of industries and business owners, to form the Business Continuity Coalition (BCC) and submitted an outline of what an optimal insurance backstop for pandemic risk should include to the a U.S. House of Representatives subcommittee. 

“For years, restaurants have paid into their business interruption insurance only to have their claims denied when they were forced by the states to shut down in the pandemic,” said Shannon Meade, vice president of public policy and legal advocacy for the National Restaurant Association. “Now, restaurants and many other businesses are struggling to find insurers willing to offer the coverage. For industries across the country to eventually begin to recover, they will need a web of insurance that will indemnify them against pandemic risk now and in the future.”

The Association told the House Financial Services Subcommittee on Housing, Community Development and Insurance on November 14 that, just as private insurance companies were unwilling to take on terrorism risk following 9/11, insurance companies are unwilling and unable to take on the amount of risk posed by a future pandemic. To meet the market’s current need, the Association supports the creation of a public-private insurance program similar to the Terrorism Risk Insurance Act (TRIA). In the event of a government-declared pandemic health emergency, this kind of backstop would enable employers to keep payrolls and supply chains intact, help limit job losses and furloughs, reduce stress on the financial system, and speed economic recovery when government-imposed limitations on operations are lifted.

To ensure that any pandemic risk insurance program meet the needs of a broad range of groups it should adhere to defined principals, including:

• Scope: Any Federal backstop should support not only non-physical-damage business interruption (NDBI) coverage, but also other pandemic impacted lines of insurance, such as event cancellation, workers compensation, building/construction insurance, and general and employment practices liability insurance. 

• Private Insurer Utilization: Insurers should be included in any pandemic insurance program to involve a number of current industry advantages: determine appropriate premiums to reduce taxpayer outlays; use existing claims-paying infrastructure to pay claims; and 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. 

• 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. 

• Affordability: Premiums for the program should not aim to cover full program costs. 

• 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. 

• Rapid Claims Payment/Minimum Transaction Costs: Any primary NDBI program should be structured as parametric coverage, which would be triggered by defined external conditions without recourse to usual proof-of-loss although use of proceeds might be audited.

• 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. 

• 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 co-share element, given the potentially extreme cumulative risk of pandemic losses. 

• Utilization of Reinsurance and Capital Markets: The Federal program should 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. 

• 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 WW II-era War Damage Corporation (later wound-down) or the Federal Crop Insurance Corporation. 

“Restaurants owners are chasing their American dream. They work long, hard hours building a business that supports and defines their community,” said Meade. “The social nature of their business is making it impossible for them to find the insurance they need to protect against pandemic losses. Without this public-private insurance backstop, the nation’s second largest private-sector employer will struggle to recover or grow.”

Find out more about how businesses have been impacted by the failure of the business interruption insurance during the pandemic and detailed BCC recommendations for creating a backstop here.