The NAIC & Center for Insurance Policy and Research have placed a special call for policy position briefs exploring the “potential development of a federal program to provide pandemic related business interruption coverage.” The Centers for Better Insurance has submitted the attached short policy brief proposing the Payroll Risk Insurance Act.

1. CBI-PAN-20-10 Version 1.0 www.betterins.org
Policy Position Brief
Pandemic Business Income Coverage Program
Jason Schupp
Centers for Better Insurance
May 11, 2020
Executive Summary
Any pandemic business income coverage program must be fundamentally based in the States. The orders
triggering pandemic business income loss originate and terminate from decisions at the State level and so
the tools to manage the economic consequences of those decisions should reside at the State level. The
essential Federal role is to serve as the primary source for liquidity and basic capital for State business
income coverage programs while protecting the taxpayer’s interest in sound governance and the fair and
effective distribution of Federal resources.
The Journal of Insurance Regulation has called for short “policy position briefs” for “potential
development of a federal program to provide pandemic related business interruption coverage.” While
the Federal government has an indispensable role in any pandemic risk program, the lockdown orders
triggering business income losses and the insurance mechanisms suggested to indemnify those losses are
squarely in the domain of the States. Accordingly, a pandemic risk program must emerge from States with
the necessary and the carefully overseen support of the Federal government.
Background
We must rely on our unfolding experiences with COVID-19 to define the context in which a pandemic
program would operate. Although a national crisis, key COVID-19 decisions are made by the States:
Each state manages its own response to the coronavirus pandemic,1
including to:2
✓ Protect employees and users of mass transit
✓ Advise citizens regarding protocols for social distancing and face coverings
✓ Monitor conditions and immediately take steps to limit and mitigate any rebounds or
outbreaks by restarting a phase or returning to an earlier phase
To counter the COVID-19 threat, governors throughout the country have issued a wide range of
“lockdown” orders supported by guidance from the Federal government. The governors, again with
guidance from the Federal government, have started to incrementally lift those orders but may reimpose
them as local conditions warrant.
Under these orders, many businesses have temporarily closed their doors, modified their operations or
experienced significant slowdowns. With income interrupted, businesses struggle with the burden (or
take action to reduce or eliminate the burden) of continuing expenses such as payroll, rent payments and
utilities (i.e., “business income loss”).3
The immediate impact is particularly acute for small businesses.
1
https://www.usa.gov/coronavirus
2
Guidelines for Opening Up America Again
3
For the sake of simplicity, loss of expected profits and extra expenses incurred in mitigating business income loss
are not addressed in this paper.
Centers for
Better Insurance
Policyholders
Employees
Shareholders
Society
www.betterins.orgSupporting value creation for all stakeholders through
beneficial purpose, sound governance and effective controls
CBI

2. CBI-PAN-20-10 Version 1.0 www.betterins.org
Elements of a Pandemic Program
Every public-private catastrophe risk program consists of three core components:
There seems a tendency to focus on the second component – who pays? – to the exclusion of the others.
In the case of pandemic, the answer to this question is straight forward. The only people with enough
money to cover business income losses from a pandemic are those with the authority to print it. Insurers
could be expected to take a small co-share (maybe 5%) under a pandemic program but only as a means
to align each insurer’s interest in tightly managing claims and controlling fraud. Insurers and reinsurers
are simply not credible recipients of a meaningful amount of pandemic risk transfer. Of course, insurers
can and should be expected to contribute their well-developed catastrophe claims administration
capabilities to quickly, accurately and fairly deliver financial relief to businesses under the program.
The more difficult question is: What should a pandemic program cover?
The Payroll Risk Insurance Act
As proposed here, the Payroll Risk Insurance Act responds to business income loss caused by an order:
• Issued by a State for the purposes of preventing, mitigating or recovering from widespread loss of
life, impairment of health, damage to property or damage to infrastructure resulting from a local,
regional or national disaster; and
• Effectively requiring the suspension or significant curtailment of business operations of eligible
businesses within the State or a substantial part of the State.
This proposed Federal law leaves with each State considerable flexibility to design and run a program that
works best for that State. It also commits the Federal government to provide proportionate and carefully
managed financial support to these State programs especially with respect to the protections offered to
small businesses and nonprofits.
States are incented to focus the insurance industry’s catastrophe claims capabilities on quickly delivering
financial assistance to the most vulnerable employers during the first four weeks of a pandemic
emergency. These “financial first responders” would buy policymakers valuable time to fully evaluate the
crisis and determine what, if any, additional financial response is appropriate.
Coverage
• Terms of coverage
• Pricing methodology
• Distribution channels
Risk Allocation
• Sources of liquidity
• Sources of risk capital
• Allocation and transfer of risk
Claims
• Claim evaluation
• Payment processing
• Reporting and controls

3. CBI-PAN-20-10 Version 1.0 www.betterins.org
A. Payroll Risk Insurance Fund
Each State has the option to establish a State Payroll Risk Insurance Fund that is:
• Subject to the regulatory supervision of the State insurance commissioner and minimum
governance standards established by U.S. Treasury;
• A pool or other entity in which every admitted and surplus lines insurer writing commercial
property insurance risks in the State is a member;
• Obligated to issue reinsurance agreements to its members for covered benefits; and
• Authorized to levy assessments on statewide commercial property insurance premium to fund its
operating expenses and debt obligations.
A State may opt out of participation by taking no action to establish a State Payroll Risk Insurance Fund.
B. Covered Benefits and Eligibility Criteria
Each participating State has the flexibility to define the coverages reinsured by its own fund (“covered
benefits”) and set eligibility criteria for businesses entitled to those covered benefits.
• Minimum Covered Benefits: Covered benefits must consist of no less than 4 weeks business
income coverage for payroll, rent, mortgage interest and utilities subject to a payroll cap for
excess compensation (i.e., salaries over $75,000) and a dollar limit of no less than $100,000.
• Minimum Eligibility Criteria: Member insurers must make available a covered benefits
endorsement at least to small businesses and nonprofits with 50 or fewer total employees.
Each State is free to design more generous covered benefits and expand the eligibility criteria for covered
benefits. Each fund develops the form, rates and rules for the covered benefits each member offers to its
commercial property policyholders. The fund submits these forms, rates and rules to the State’s Insurance
Commissioner for review and approval.
C. Claims Administration
A business or nonprofit submits its claim for covered benefits to the member insurance company which
had its commercial property policy in force on the effective date of the relevant State order. That insurer
is responsible for claims administration including claims payment. Each fund establishes rules for (a) the
payment of the member insurer’s incurred loss adjustment expenses; and (b) reimbursement or
advancement of claim payments made or to be made by a member insurer.
D. Federal Financial Participation
U.S. Treasury is obligated to loan each State Payroll Risk Insurance Fund an amount equal to 100% of the
fund’s obligations to its members. The loan is issued for a ten-year period at an annual interest rate of 1%
with no payments due during the first 12 months.
Treasury immediately forgives part of the loan on the following schedule:
• 95% with respect to minimum covered benefits paid to small businesses (50 employees or less);
• 50% with respect to minimum covered benefits paid to mid-sized businesses (51 - 500
employees); and
• 10% with respect to minimum covered benefits paid to large businesses (more than 500
employees).