By Ranamita Chakraborty
Chubb has proposed that a public-private partnership programme that provides business interruption (BI) insurance for enterprises in the US can be implemented before the next pandemic strikes.
The (re)insurer’s suggested pandemic BI scheme comprises a programme for small businesses that provides an immediate cash infusion when a pandemic is declared and a separate voluntary programme for medium and large businesses with losses paid through the existing industry claims adjudication process.
Both programmes depend on the federal government assuming a substantial percentage of the risk through direct US treasury funding to insurers for the small business programme and a newly created government-run reinsurance entity for medium and large business losses.
The scheme has a total capacity of around $1.15tn with an aggregate limit of $750bn for small businesses and $400bn for medium to large businesses.
According to Chubb, some risks such as catastrophic terrorism, nuclear accidents and pandemics can create losses so great that they are not insurable in the private insurance market without substantial government support.
As seen during the COVID-19 period, these catastrophic events can cause massive economic disruption as governments struggle to provide effective and timely assistance through programmes cobbled together after the event has taken place.
These ad hoc programmes can lead to inefficiencies, substantial delay and uncertainty as well as real and perceived unfairness in aid distribution.
Therefore, Chubb’s suggested pandemic BI programme seeks to provide:
Affordability and certainty for small businesses about the amount of financial support available if a pandemic shuts down the economy
Quick and efficient payment of a pre-determined sum to small businesses without the need to adjudicate individual claims
An incentive to keep people employed, rather than relying on unemployment relief.
A market-oriented programme for larger businesses intended to support and stimulate the private market for pandemic coverage
Insurance industry risk-sharing with the federal government, together with a better understanding of pandemic risk, risk mitigation and preparedness, increasing over time.