Centers for Better Insurance analyzes key regulatory issues facing the insurance industry. This document summarizes concerns around the Pandemic Risk Insurance Act (PRIA) and how it would treat different policyholders unequally. Regular policyholders would see little direct benefit from PRIA, as standard business interruption policies require property damage to trigger coverage. However, large corporations could write their own pandemic policies without needing to prove property damage, potentially receiving large payouts with few restrictions.

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What would be “made available”? And to whom?
Pandemic Risk Insurance Act
CBI
CBI-PAN-20-12

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PRIA and Property Damage
Executive Summary
While most analysis of the Pandemic Risk Insurance Act (PRIA) has focused on how the insurance industry and federal government would
divide up the risk of future pandemics, little has been said about what policyholders stand to gain or lose. Based on the April 7 discussion
draft, PRIA is shaping up to be a Tale of Two Policyholders and it is not hard to figure out which one would get the short end of the stick.
Regular Policyholders Large Corporations
Small businesses, mid-sized businesses, churches, school districts
and other nonprofits and local governments would depend on
traditional insurance companies to offer:
• Standard insurance policies; and
• Pricing based on risk and market forces.
These standard policies now typically come with virus or pandemic
exclusions. PRIA would require participating insurers to offer
business interruption coverage without such exclusions.
That is great as far as it goes, but it does not go very far for these
policyholders.
Standard business interruption coverage will only pay out if the
business is interrupted because of property damage. PRIA does
nothing to address that obstacle to coverage.
An obstacle it is. Policyholders have resorted to litigation and state
legislation hoping for a declaration COVID-19 is a property damage
phenomenon causing their businesses to shut down.
The same legal gyrations would be necessary for a regular
policyholder to tap into the pandemic coverage promised by PRIA.
PRIA grants large corporations a much smoother path to
business interruption payouts. The proposal invites businesses
with enough money and sophistication to dispense with
traditional insurers offering standard policies. Instead, large
corporations can simply write their own insurance policies.
Just as with the Terrorism Risk Insurance Act, a large
corporation can form a subsidiary in Vermont, Delaware or one
of several other friendly jurisdictions to serve as the company’s
personal insurance company - known as a captive.
By owning its own insurance company, a large corporation can
design and set the price for a bespoke multi-billion-dollar
pandemic bailout free of any restrictions on its flexibility to:
• Pay executive bonuses;
• Declare shareholder dividends;
• Buyback its own shares; and
• Lay off employees.
More than 500 have written their own terrorism insurance
policies under TRIA without any oversight from U.S. Treasury
and little permitted transparency from State insurance
commissioners. There is every reason to expect the same here.

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PRIA and Property Damage
Overview of the Proposed Program
Insurer
Co-Share
5%
Federal Share
95% of insured losses above the insurer deductible
Insurer Deductible
5% of insurer’s prior year direct earned premium for covered lines
$500 billion cap on aggregate Insurer Share and Federal Share
The Federal Backstop The Make Available Requirement
The Pandemic Risk Insurance Act replicates the basic quid pro quo of the Terrorism Risk Insurance Act. The federal government promises
to reimburse a large portion of an insurer’s business interruption coverage payouts from a pandemic. In exchange the insurer agrees to
offer policies that do not specifically exclude pandemics from business interruption coverage.
PRIA would establish a federal backstop based on the Terrorism Risk
Insurance Program. Under the backstop, the federal government
“reinsures” a percentage of covered losses paid by the insurance
company above the insurance company’s deductible. Both the federal
and insurer shares are subject to an overall program cap.
A participating insurance company must offer business interruption
coverage for pandemics on the same terms, limits and conditions
applicable to business interruption coverage for any other event.
Under a standard policy “make available” would be satisfied by offering
a policy without a pandemic, virus or similar specific exclusion.

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PRIA and Property Damage
Regular Policyholders: Property Damage Required
Coverage sold to a regular policyholder only covers business interruption when there has been “direct physical loss or damage” to
property. Moreover, that property damage must be the cause of the business interruption. PRIA’s “make available” requirement does not
change this prerequisite to coverage because property damage is a condition for all business interruption claims not just pandemic claims.
Standard property insurance policies designed for small and mid-sized
businesses require damage to property that causes either:
• The business to suspend its operations at the insured
premises; or
• A governmental authority to issue an order prohibiting
access to the insured premises.
Property damage “in the air” is insufficient. The property damage must
be the cause of the business interruption for coverage to apply.

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PRIA and Property Damage
COVID-19 Litigation and Legislation Tries to Find “Property Damage”
COVID-19 litigation and efforts within state legislatures aimed at triggering business interruption coverage seek to establish that the virus
causes “property damage.” Without property damage, there can be no coverage. The same dynamics would play out even if PRIA becomes
law: Small and medium-sized businesses would still need to establish property damage had caused the interruption of their businesses.
Pennsylvania Senate Bill 1127
Oceana Grill v. Lloyds (Orleans Parish, Louisiana)
837 Foothill Blvd v. Travelers (LA County, California)
Litigation Legislation
Request for a judicial declaration that
COVID-19 causes property damage
Request for a vote that COVID-19
causes property damage

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PRIA and Property Damage
Insurance Captives: No Need for a Look for Property Damage
Under PRIA large corporations have the privilege to write their own pandemic insurance policies just as they write their own terrorism
insurance policies under TRIA. As we have seen with TRIA, large corporations would issue to themselves pandemic business interruption
policies with large limits, exotic coverages and low premiums - while regular policyholders ultimately foot the cost of the program.
Corporate Parent
Operating
Subsidiary
Captive Insurance
Company
Captives under TRIA
A captive is an insurance company owned by its policyholder.
This subsidiary negotiates the terms of coverage with its parent,
determines how much premium to charge its parent and
decides whether its parent’s claims should be paid. Typically,
the parent’s key executives sit on the board of the captive.
According to Treasury’s most recent report on TRIA, captive
owners are key beneficiaries of the program:
• At least 500 captives participate in the program;
• Captives account for 23% of the all US terrorism premiums
but only 4% of other property and casualty premium; and
• Captives would receive about 95% of all backstop recoveries
under a hypothetical truck bomb attack in Chicago.
Captives under PRIA
Under PRIA, a large corporation could negotiate with its captive
subsidiary for coverage of business interruption loss from a
pandemic:
• Without a requirement for the corporate parent to establish-
o Any property damage from the pandemic; or
o Any relationship between property damage and the
interruption of business
• With multi-billion-dollar limits of coverage at little cost-
o $1 million premium results in a $50,000 deductible
o $2 billion of coverage would require the captive to
line up only $100 million of risk financing
• Free from the attachment of any federal strings on its bailout,
the large corporation would suffer no restraint on:
o Executive compensation;
o Shareholder dividends;
o Share buybacks; or
o Layoffs.
Regular policyholders who must depend on the free market to
define coverages and pricing for pandemic coverage would enjoy
none of these corporate perks. As taxpayers, though, they would
be left with the bill for the generosity of their larger competitors.