Pandemic Risk Insurance Act Could Provide Future Stability for CRE

Tired of the pandemic? Job numbers from the Bureau of Labor Statistics took a welcome jump above expectations in October, reaching 531,000, and August and September revisions adding another 235,000 in retrospect. Businesses seem to be shrugging off Covid-19, including the delta variant.

But there is no reason for complacency. Many experts in infectious disease have already stressed that other pandemic threats are likely already developing. If history is any judge, countries, including the US, won’t perform the necessary advanced monitoring and advanced actions to mitigate the impact. If something does happen, it could take months for the government to help stop economic disaster.

Rep. Carolyn Maloney (D-NY) filed a bill that would establish a “Pandemic Risk Insurance” program “that provides for a transparent system of shared public and private compensation for property and casualty insurance  losses  resulting  from  a  pandemic  or  outbreak of communicable or infectious disease.”

The measure “moves to provide a government backstop, modeled after the Terrorism Risk Insurance program (TRIA), to drive increased private sector insurance coverage for future pandemic risk,” as the National Multifamily Housing Council, which supports the bill, noted. 

The bill’s text says that it would protect consumers by ensuring continued availability and affordability of property and casualty insurance for pandemic- or infectious disease outbreak-related losses.

In a 2020 presentation to the Federal Advisory Committee on Insurance, COVID-19 Subcommittee, Robert Hartwig, a clinical associate professor of finance, risk management, and insurance at the University of South Carolina explained that “potential losses can easily exceed the industry’s capital, surplus and premium resources by many orders of magnitude.” 

Total business continuity losses in the US alone were estimated at $1.1 trillion a month for businesses of all sizes. But “only $4.5B in premium is written each month, on average, in relevant lines of insurance” by all property and casualty insurers in the US. He further said that there had been 7 pandemics with multi-billion-dollar economics in the last 18 years and that viral outbreaks are not an insurable risk. 

Insurance depends on the relative predictability of incidents and magnitudes of events to create 

“The need for economic stability across real estate in the wake of a pandemic is clear and PRIA would serve as a needed tool in better mitigating future risk,” the NMHC wrote.

The bill, just having been introduced, is not yet scheduled for a vote. Such a measure would also need support from the Senate to head to the president for a decision.