    [Senate Hearing 117-579]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-579

              EXAMINING FRAMEWORKS TO ADDRESS FUTURE PANDEMIC RISK

    =======================================================================

                                    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

                                  ----------

                            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

                                  ----------

                            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

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                   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).
    ---------------------------------------------------------------------------
        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.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    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

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                   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.
                                    ------

            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.
                                    ------

            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.
                                    ------

            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.
                                    ------

            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.
                                    ------

           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.

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