NAMIC Tells Congress Pandemic Risk Remains Uninsurable

Pandemics are inherently uninsurable events, the National Association of Mutual Insurance Companies told members of Congress.

Andrew Pauley, NAMIC's public policy counsel, explained at a virtual roundtable hosted by Rep. French Hill, R-Ark., the ranking member of the House Financial Services Subcommittee on Housing, Community Development and Insurance, how the potential for widespread and concurrent losses from a pandemic for an indefinite period of time defies the fundamental nature of insurance.

"Insurance was not designed to insure policyholders who are all expected to suffer losses at the same time," he said. "It has been estimated that costs of a pandemic for business loss of use could run in excess of the entire insurance reserve retention to pay all claims across all lines of insurance in a short period of time. This starkly demonstrates that pandemics are not an insurable risk."

A further complication comes from state consumer protection laws, Pauley noted, which require insurance companies to keep significant reserves to pay claims. "Asking insurers to cover open-ended, essentially unlimited pandemic exposure would undermine these state laws and vital consumer protections," he said. "Given the enormity of the risk involved, these laws would require companies to charge unaffordable rates for coverage, which predictably would result in extremely low uptake by consumers."

Instead, Pauley urged lawmakers to recognize that the economic toll of government-ordered closures and other public safety efforts should be the responsibility of government. He encouraged them to resist the temptation "to create new federal pandemic programs that could needlessly and severely disrupt and destabilize the nation's insurance marketplace without resolving these concerns."