Commercial insurers cannot cover pandemics via business interruption, says American Academy of Actuaries

Business interruption (BI) payments related to the COVID-19 pandemic should be covered by federal insurance programmes, rather than the commercial market, according to the American Academy of Actuaries (AAA).

AAA made the case in a letter to the US House Committee on Financial Services, dated May 11. It argued that existing federal insurance programmes for costly, hard-to-estimate property/casualty risks are better placed to facilitate coverage of BI due to pandemics than a model that loads the costs of pandemic risks into premiums the way commercial insurers normally would.

Lisa Slotznick, AAA’s vice president of casualty who signed the letter, said: “Pandemic risk is more similar to the catastrophic risks covered by programmes like the Terrorism Risk Insurance Program and the National Flood Insurance Program than to risks normally insured by the commercial insurance market.”

Any new federal program seeking to facilitate pandemic risk coverage should reflect that difference, she argued. "From an actuarial perspective, pricing the potentially infrequent but high, widespread costs of pandemic risk into premiums as they would typically be calculated in the commercial market could raise affordability and other issues that programs like Terrorism Risk Insurance Program and National Flood Insurance Program are specifically designed to address."

She urged committee members to consider the difficulties re/insurers would face in pricing inclusion of pandemic coverage for BI, and the impact on premiums for insureds, which would likely make any coverage unaffordable. The economic impact of pandemics mean re/insurers would be liable to make payments when they were least able to make them, she noted.