scholarly journals Feasibility questions about government-sponsored insurance for business interruption losses from pandemics

2020 ◽  
pp. 1-26
Author(s):  
Robert W. Klein ◽  
Harold Weston
Keyword(s):  
Crop Insurance ◽  
Private Insurance ◽  
Economic Losses ◽  
Preliminary Review ◽  
Working Paper ◽  
Strong Interest ◽  
Terrorism Risk ◽  
Insurance Program ◽  
Risk Insurance ◽  
Business Interruption

Widespread economic losses to many businesses due to COVID-19 business closures have led many plaintiffs’ attorneys to assert in lawsuits that business interruption (BI) insurance policies cover these losses, while insurers generally contend that their BI policies exclude coverage for a variety of reasons. We explain the basic coverage contentions below. Additionally, several states are considering measures that would retroactively establish coverage for pandemic-caused losses under BI policies. While the resolution of coverage disputes and the legality of retroactive coverage expansions in the courts is uncertain, clearly there is strong interest in making BI pandemic insurance available going forward. While a few insurers have offered BI pandemic coverage, no firms have purchased it (Lerner, 2020). Further, many insurers are reluctant to expand their BI policies to cover pandemic losses. Hence, there is strong interest in creating a federal government insurance program that would provide BI pandemic coverage. Currently, there are at least two formal proposals to establish such a program. One proposal is the Pandemic Risk Insurance Act of 2020 (PRIA), which was introduced in the U.S. Congress as H.R. 7011; PRIA would establish a Pandemic Risk Reinsurance Program (PRRP) modeled after the Terrorism Risk Reinsurance Program (TRRP) established by the Terrorism Risk Insurance Act (TRIA). Three industry trade associations also have proposed a Business Continuity Protection Program (BCPP) as an alternative to PRIA that is similar in some regard to the National Flood Insurance Program (NFIP). PRIA intends to create a public and private insurance program that would provide BI insurance for pandemics, with participating private insurers retaining 5% of losses above a deductible. We critique the program contemplated by PRIA and discuss the BCPP. Additionally, we consider a program concept of our own design that would also borrow from the NFIP (but would differ somewhat from the BCPP), as well as a program similar to the federal crop insurance program. We conclude that frameworks based on the NFIP or the federal crop insurance program would have several advantages over PRIA, which has a number of problems, but even these alternative frameworks would face many challenges. This policy brief provides a preliminary review of the PRIA and BCPP drafts, as well as other alternative frameworks, and draws from a longer working paper by the authors (Klein and Weston, 2020)

scholarly journals Policy: Watch Challenges for Terrorism Risk Insurance in the United States

2004 ◽  
Vol 18 (4) ◽  
pp. 201-214 ◽  
Author(s):  
Howard Kunreuther ◽  
Erwann Michel-Kerjan
Keyword(s):  
Federal Government ◽  
Risk Sharing ◽  
Insurance Coverage ◽  
The United States ◽  
Terrorism Risk ◽  
Insurance Program ◽  
Before And After ◽  
Risk Insurance ◽  
Unites States ◽  
The U.S

This paper examines the role that insurance has played in dealing with terrorism before and after September 11, 2001, by focusing on the distinctive challenges associated with terrorism as a catastrophic risk. The Terrorism Risk Insurance Act of 2002 (TRIA) was passed by the U.S. Congress in November 2002, establishing a national terrorism insurance program that provides up to $100 billion commercial coverage with a specific but temporary risk-sharing arrangement between the federal government and insurers. TRIA's three-year term ends December 31, 2005, so Congress soon has to determine whether it should be renewed, whether an alternative terrorism insurance program should be substituted for it, or whether insurance coverage is left solely in the hands of the private sector. As input into this process, the paper examines several alternatives and scenarios, and discusses their potential to create a sustainable terrorism insurance program in the Unites States.

scholarly journals The Terrorist Risk Insurance Act of 2002: The Federal Government's Role in Addressing Losses Caused by Terrorism

2004 ◽  
Vol 11 (1) ◽  
pp. 51
Author(s):  
Michael P.G. Stinziano
Keyword(s):  
United States ◽  
Risk Sharing ◽  
Market Failure ◽  
Private Insurance ◽  
The United States ◽  
Insurance Companies ◽  
Terrorist Attacks ◽  
Terrorism Risk ◽  
The Government ◽  
Risk Insurance

In response to problems associated with insuring against the risk of foreign terrorist attacks in the United States, Congress passed The Terrorist Risk Insurance Act of 2002 (TRIA) to help solve an availability and affordability crisis in the private marketplace for terrorism risk insurance. TRIA established a temporary three-year federal program that created a risk-sharing mechanism to provide private insurance companies with a tool to manage the allocation of their risk resulting from foreign terrorist attacks. The role of government in helping to provide financial protection from losses not served by private markets is not new, but protecting against terrorism risk is. TRIA and its possible alternatives remain a topic of considerable discussion and debate as our country continues to address the threat of terrorism in the United States. One important element of this analysis is to determine what permanent role, if any, the government should play in providing terrorism risk insurance to address the market failure that occurred after September 11. Another is to explore possible alternatives to the current temporary program.

The US crop insurance program and WTO disciplines

2016 ◽  
Vol 76 (1) ◽  
pp. 6-14 ◽  
Author(s):  
Joseph William Glauber
Keyword(s):  
Dispute Settlement ◽  
Crop Insurance ◽  
Developed Countries ◽  
Eligibility Criteria ◽  
Agricultural Insurance ◽  
Content Type ◽  
Insurance Program ◽  
The Us ◽  
Domestic Support ◽  
Green Box

Purpose – The purpose of this paper is to examine the US crop insurance programs in the context of domestic support disciplines under the World Trade Organization (WTO). Crop insurance has become an integral part of many domestic support programs, not just in developed countries, but in important emerging markets as well. An often-cited impetus for the growth in insurance program is the potential treatment of such programs as exempt from WTO reduction commitments. Design/methodology/approach – A detailed examination of the so-called “green box provisions” of the Uruguay Round Agreement on Agriculture is presented with particular emphasis on eligibility criteria for crop yield and revenue insurance programs. Findings – While WTO rules potentially shield green box policies from reduction, few developed countries have notified agricultural insurance policies under Annex 2. Moreover, crop insurance programs have been challenged in recent WTO dispute settlement cases and domestic countervailing duty investigations. Originality/value – The paper presents a unique perspective on a program which has become the largest single farm program in the USA.

scholarly journals Value-at-Risk and Models of Dependence in the U.S. Federal Crop Insurance Program

2019 ◽  
Vol 12 (2) ◽  
pp. 65 ◽  
Author(s):  
A. Ford Ramsey ◽  
Barry K. Goodwin
Keyword(s):  
At Risk ◽  
Latent Variables ◽  
Value At Risk ◽  
Risk Sharing ◽  
Crop Insurance ◽  
Distribution Functions ◽  
Insurance Program ◽  
Probable Maximum Loss ◽  
Insurance Portfolio ◽  
Wide Range

The federal crop insurance program covered more than 110 billion dollars in total liability in 2018. The program consists of policies across a wide range of crops, plans, and locations. Weather and other latent variables induce dependence among components of the portfolio. Computing value-at-risk (VaR) is important because the Standard Reinsurance Agreement (SRA) allows for a portion of the risk to be transferred to the federal government. Further, the international reinsurance industry is extensively involved in risk sharing arrangements with U.S. crop insurers. VaR is an important measure of the risk of an insurance portfolio. In this context, VaR is typically expressed in terms of probable maximum loss (PML) or as a return period, whereby a loss of certain magnitude is expected to return within a given period of time. Determining bounds on VaR is complicated by the non-homogeneous nature of crop insurance portfolios. We consider several different scenarios for the marginal distributions of losses and provide sharp bounds on VaR using a rearrangement algorithm. Our results are related to alternative measures of portfolio risks based on multivariate distribution functions and alternative copula specifications.

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