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Best's Insurance News & Analysis - March 20, 2020 03:46 PM

Professor Urges Congress to Amend TRIA to Include Pandemics, COVID-19

WASHINGTON - An insurance professor from Indiana has a plan to expand the federal terrorism insurance backstop to include pandemic coverage retroactively.

Zachary S. Finn, clinical professor and director at the Davey Risk Management & Insurance Program, Lacy School of Business, Butler University, is proposing a measure he calls the Amended Terrorism, Pandemic Risk Insurance Act of 2020 which would amend the Terrorism Risk Insurance Act to include pandemics. It would allow businesses to retroactively buy into the coverage at several times the original premium offered.

“We are facing years and years of coverage litigation, costing billions of dollars and leading to market uncertainty,” Finn told Best’s News Service. “We will swallow this one way or another, (amending TRIA) is the only way to restore certainty to the market. It restores payroll, prevents litigation, creates a permanent structure for terrorism and pandemics, two unrelated risks.”

The combination of two uncorrelated perils in a risk pool should reduce the standard deviation around future projected losses, ultimately providing a more efficient risk relief valve for the economy, Finn said.

Passing such a measure is critical to stabilizing the market for business interruption and event cancellation insurance, Finn said, which would ensure the financial stability of a number of U.S. industries including events, leisure, travel and higher education.

Finn said the pandemic shutdown at Butler is costing about $10 million. This scenario will play out repeatedly across the US and “ripple through the economy like a contagion,” Finn said.

The proposed amendment would require congressional approval, and Finn said he’s speaking with members of Congress now. He hoped to have the concept on President Donald Trump’s desk by March 20. Finn said he’s been in self-quarantine, but is considering driving to Washington and sleeping in his car to be there on March 23 if needed.

Details to the plan include:

— Expanding TRIA to include pandemics, and the associated perils of virus, communicable diseases, quarantines, government ordered repatriation and border closings.

— Coverage would be backdated to include current business interruption losses for the coronavirus, COVID-19 pandemic. Insureds who previously declined TRIA coverage will be given a one-time opportunity to retroactively purchase coverage at three times the original TRIA premium quoted.

— The measure would create a platform to serve as an organized backstop and risk pool for future losses for pandemics and associated perils.

— The Secretary of the U.S Treasury Department would have to declare a Certified Act of Pandemic to trigger payment under the measure.

— Losses would be adjusted and paid exactly as if a terrorism event were the certified act causing the business interruption.

Attempts to reach Sen. Majority Leader Mitch McConnell and the National Association of Insurance Commissioners President and South Carolina Insurance Director Raymond Farmer were not immediately successful.

U.S. lawmakers have asked insurance companies to retroactively widen business-interruption coverage policies, honor COVID-19 claims and pay for financial losses that are a result of the spreading coronavirus pandemic (Best’s News Service, March 20, 2020).

To view AM Best analysis and commentary on the COVID-19 outbreak visit: http://www.ambest.com/about/coronavirus.html

(By Meg Green, senior associate editor, AM BestTV: Meg.Green@ambest.com)

BN-NJ-3-20-2020 1546 ET #

Related News: SEPTEMBER 11, TERRORISM RISK INSURANCE ACT, FEDERAL LEGISLATION, BUSINESS INTERRUPTION INSURANCE, FEDERAL REGULATION


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