Improving the Availability and Affordability of Pandemic Risk Insurance

Projected Performance of Proposed Programs

by Lloyd Dixon, Jamie Morikawa


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Research Questions

  1. What are the distinguishing features of the most visible proposals for a pandemic risk insurance program?
  2. How will these programs perform in terms of specific key dimensions: efficacy, efficiency, affordability, risk borne by commercial insurers, government net outlays, and the extent of policyholder subsidies?

The COVID-19 pandemic led to a substantial drop in U.S. economic activity in 2020. Businesses often purchase business interruption coverage for loss of revenue due to fires and other perils, but insurers have held that in most cases they are not obligated to cover the enormous losses caused by COVID-19. Now, insurers, insurance industry trade groups, policyholder groups, and Congress have developed proposals to expand the availability of insurance for pandemic-induced business closures or restrictions.

The programs differ in several key dimensions, including the amount of risk borne by commercial insurers, the approach to paying claims, the extent to which the U.S. government receives a premium for the risk it bears, and the extent of policyholder subsidies. But the programs all seek to define benefits and the benefit distribution mechanism in advance rather than rely on programs hastily crafted after an event occurs.

The authors describe the distinguishing features of the most-visible proposals and develop a quantitative model that projects their potential consequences. Proposed programs are evaluated in terms of the proportion of revenue decline replaced (efficacy), efficiency, affordability, the risk borne by the commercial insurers, expected annual government net outlays, and the amount of subsidy provided to policyholders. This analysis provides information useful to assessing the advantages and disadvantages of different approaches for improving the availability and affordability of pandemic risk insurance.

Key Findings

  • All five proposals examined contain important gaps that remain to be filled.
  • For small and medium-sized firms, the Business Continuity Protection Program approach performs best in terms of affordability, efficacy, and efficiency.
  • The Pandemic Risk Insurance Act of 2020 (PRIA) approach does the best in terms of risk borne by commercial insurers, expected annual net government outlays, and policyholder subsidy.
  • For large firms, the Business Continuity Protection Program also performs best in terms of affordability, efficacy, and efficiency. PRIA again transfers the most risk to the private sector, but Chubb's Pandemic Business Interruption Program generates the lowest expected annual government net outlays and policyholder subsidy.
  • Projected outcomes are sensitive to a number of underlying model parameters, about which there is considerable uncertainly. In particular, the pandemic return period that insurers use in pricing coverage has an important impact on premium and take-up, with the return period that insurers use in pricing likely depending on whether the program applies to COVID-19 and its variants.


  • Policymakers and insurers should design an insurance-based approach for providing businesses with the resources to maintain payroll and benefits and cover ongoing operating expenses during a pandemic.
  • This insurance-based approach should be compared with a government-based approach, such as the Paycheck Protection Plan.

Table of Contents

  • Chapter One


  • Chapter Two

    Overview of Proposed Programs

  • Chapter Three

    Modeling Approach and Base-Case Parameters

  • Chapter Four

    Projected Program Performance in the Base Case

  • Chapter Five

    Sensitivity of Projections to Changes in Parameter Values

  • Chapter Six


  • Appendix A

    Overview of Business Interruption Policies

  • Appendix B

    Insurance Payments in a Partial Shutdown

  • Appendix C

    Pandemic Risk Insurance Model

  • Appendix D

    General and Selling Expense and Loss Adjustment Expense Ratios by Line of Business

Research conducted by

Funding for this research was provided by the generous contributions of the RAND Kenneth R. Feinberg Center for Catastrophic Risk Management and Compensaiv Improving the Availability and Affordability of Pandemic Risk Insurance tion Advisory Board and, in part, by a contribution to the center by the American Property Casualty Insurance Association. This research was conducted by the Justice Policy Program within RAND Social and Economic Well-Being.

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