Dive Brief:

• Retailers, reeling from the disruption caused by COVID-19, are pushing for a nationally backed insurance program that would cover losses from pandemics.
• In a letter to Congress, retail organizations backed a bill, the "Pandemic Risk Insurance Act of 2020" (PRIA), that would insure at-risk businesses through a pre-funded pool. The National Retail Federation, the Retail Industry Leaders Association, American Booksellers Association and more than a dozen other trade groups signed the letter.
• The groups compared what would be a federally back-stopped program to an existing program insuring against terrorist acts created after 9/11.

Dive Insight:

COVID-19 is a financial disaster for retailers and their many stakeholders. With more than 100 major retailers, as well as small retailers of all sorts, temporarily closing shop around the country as part of the effort to slow the pandemic, brick-and-mortar revenue has cratered. In response, retailers are taking on new debt, furloughing and laying off employees, skipping rent, canceling vendor orders and stretching suppliers for longer payment terms. 

The problem is a simple one: There is no cash coming in the door. Insurance policies cover business interruptions, and the revenue lost with them, in some cases. In an emailed client note earlier this month, Jeffries analysts pointed out that business are "unsuccessfully seeking payments" from insurance companies for COVID-19 losses.

That is because many contracts don't underwrite pandemics specifically or require physical damage and loss, and because the sheer volume of claims could bankrupt the insurance industry, the analysts said, based on a call with Kevin McPoyle, co-founder of consultancy KMRD partners. 

According to the trade groups, the gap between need and paid claims is huge. "The vanishingly few businesses who have been able to obtain pandemic coverage endorsements to their policies will not be covered for COVID-19, or any mutation of it, if the virus returns this winter," the groups said. More, they noted that retailers trying to renew coverage are being told there is no market capacity. 

That's where the government would come in, with a federal loss-sharing program. And hopefully, the losses will rarely be as great as they are with COVID-19. "A pandemic is an insurable risk and has been modeled and reinsured in the past; not every pandemic will wreak total destruction, and some might be more regional, but when one occurs, it is likely to result in a total cessation of businesses," the groups said in their letter.