[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




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                                 ______
                                 

                 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\
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     \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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               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).
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    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.

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    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).

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    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.

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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.

              Additional Material Supplied for the Record

                        LETTER FROM THE COUNCIL

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                            LETTER FROM NAIC

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                           STATEMENT OF NAMIC

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                            STATEMENT OF PIA

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                            LETTER FROM ICSC

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                           STATEMENT OF IIABA

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