GAO-24-106075, Pandemic Risk: Federal Insurance Approaches Would Entail Costs to Taxpayers and Businesses Might Not Participate

Summary

A U.S. Government Accountability Office report to congressional addressees, GAO-24-106075, dated December 19, 2023, on federal approaches to insuring businesses against pandemic losses. The report finds that private insurance played a limited role in addressing business losses from the COVID-19 pandemic because nearly all business interruption policies required physical damage to property, and that many insurers have since reduced their exposure to pandemic risk. It examines two potential federal insurance approaches, sharing risk with insurers or assuming all the risk, and states that either would face challenges in providing widespread, affordable coverage. It also discusses noninsurance approaches, noting that COVID-19 relief laws provided about $4.6 trillion, with about $1.2 trillion going to small businesses. Appendixes describe scope and methodology.

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United States Government Accountability Office

Report to Congressional Addressees

December 2023

PANDEMIC RISK
Federal Insurance
Approaches Would
Entail Costs to
Taxpayers and
Businesses Might Not
Participate

GAO-24-106075


December 2023

PANDEMIC RISK
Federal Insurance Approaches Would Entail Costs to
Taxpayers and Businesses Might Not Participate
Highlights of GAO-24-106075, a report to
congressional addressees

Why GAO Did This Study

What GAO Found

Businesses across the United States
experienced disruptions, declines in
demand, and mandated closures
during the COVID-19 pandemic.
Emergency relief programs enacted in
2020 and 2021 provided about $4.6
trillion for pandemic response and
recovery, with about $1.2 trillion going
to small businesses in the form of
loans and grants. The potential for very
large losses raises the question of
what role insurers and the federal
government might play in a future
pandemic.

Private insurance played a limited role in addressing business losses from the
COVID-19 pandemic. Some businesses turned to business interruption coverage
to recoup losses. But insurers generally did not pay pandemic-related claims,
because nearly all policies required physical damage to property. Insurers paid
some pandemic-related claims in other property/casualty lines, including event
cancellation and workers’ compensation. Many insurers since have reduced their
exposure to pandemic risk, primarily by adding physical damage requirements or
virus exclusions or removing previously available virus coverage. Actuaries,
insurance experts, insurers, and reinsurers generally agree pandemic risk—
which involves potentially large, widespread, and difficult-to-predict losses—is
largely uninsurable because it does not meet key insurability criteria.

The CARES Act includes a provision
for GAO to monitor federal efforts
related to COVID-19. This report
examines (1) the role insurance played
addressing pandemic business losses,
(2) benefits and challenges of federal
insurance approaches for addressing
such losses, and (3) benefits and
challenges of federal noninsurance
approaches for addressing such
losses.
GAO analyzed information on
insurance claims and reviewed criteria
for insurability, proposals for federal
pandemic insurance programs, and
related academic and industry studies.
To identify and obtain views on the
benefits and challenges of federal
insurance and noninsurance
approaches, GAO reviewed academic
and other studies, including GAO
reports. GAO also held two panel
discussions and multiple interviews
with insurance industry participants
and experts, among others.

View GAO-24-106075. For more information,
contact Alicia Puente Cackley at (202) 5128678 or cackleya@gao.gov.

In a potential federal pandemic insurance program, the government could (1)
share risk with insurers or (2) assume all the risk, with insurers acting as
administrators. Either approach could have benefits but also likely would face
challenges in efficiently providing widespread, affordable coverage to businesses
and achieving other desired policy goals.
•

Risk-sharing could help reduce federal fiscal exposure and promote a larger
private market for pandemic insurance. However, stakeholders agreed that
given the magnitude of potential losses (estimated at more than $1 trillion
based on the experience with COVID-19), insurers might be able to assume
only a small share of the risk.

•

Both approaches could make premiums affordable, but doing so likely would
require large subsidies or financial assistance to businesses. While some
businesses might buy coverage, others might forgo coverage, because they
believed another pandemic would not happen soon or would expect other
government assistance if it did.

•

Both approaches could promote risk mitigation and leverage insurers’ claimsprocessing expertise. But insurers told GAO that processing millions of
claims in a short time could be costly and challenging for the industry.

Given these potential difficulties, Congress also could consider other
(noninsurance) responses to the next pandemic, as it did in response to COVID19. These options (such as a program to help businesses pay operating
expenses) could be costly but reach millions of businesses quickly. But
distributing assistance quickly without proper controls could leave programs at
risk of improper payments and fraud.
Experiences of COVID-19 emergency assistance programs in the United States
and other nations provide important insights on how the federal government
could improve its response to future pandemics. For instance, the government
could share risk or program costs with private entities such as businesses or
banks, implement measures to prevent improper payments and fraud (as GAO
recommended in multiple reports), and proactively plan for the next pandemic to
reduce uncertainty.
United States Government Accountability Office


Contents

Letter

1
Background
Private Insurance Played a Limited Role in Addressing Pandemic
Business Losses
Challenges to Federal Pandemic Insurance Would Include
Affordability, Participation, and Feasibility of Risk Sharing
Noninsurance Approaches Could Ensure Widespread Assistance
but Could Involve High Costs and Other Trade-offs
Agency Comments

2

34
42

Appendix I

Objectives, Scope, and Methodology

44

Appendix II

GAO Contact and Staff Acknowledgments

50

Figure 1: Pandemic-Related Business Interruption Insurance
Claims Contested in Courts, by Industry Sector (March
2020–October 2023)

10

7
18

Figure

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GAO-24-106075 Pandemic Risk


Abbreviations
COVID-EIDL
NAIC
PPP
SBA

COVID-19 Economic Injury Disaster Loan
National Association of Insurance Commissioners
Paycheck Protection Program
Small Business Administration

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GAO-24-106075 Pandemic Risk


Letter

441 G St. N.W.
Washington, DC 20548

December 19, 2023
Congressional Addressees
Many U.S. businesses experienced supply shortages, declining demand
for their products and services, and other disruptions during the COVID19 pandemic. 1 In addition, government-mandated closures and other
measures taken to limit the spread of the virus significantly disrupted
economic activity worldwide. COVID-19 relief laws enacted in 2020 and
2021 provided about $4.6 trillion of federal funding for pandemic response
and recovery. Of this, about $1.2 trillion went to assist small businesses in
the form of loans and grants.
Insurance has played a key role in the recovery process for businesses
after other extreme events, such as hurricanes or earthquakes. However,
insurance industry stakeholders and others have questioned whether
insurance can play a similar role with pandemic events. Many have said
that the potential for very large losses occurring concurrently make such
risk uninsurable in the private market, raising the question of whether the
federal government has a role in making pandemic insurance available to
businesses.
The CARES Act includes a provision for us to report on efforts to prepare
for, respond to, and recover from the COVID-19 pandemic. 2 For this
report, we examined the (1) role private-sector insurance played in
helping businesses address pandemic-related losses, (2) benefits and
challenges of federal insurance approaches for addressing pandemic
business losses, and (3) benefits and challenges of noninsurance
approaches for addressing pandemic business losses.
To address the first objective, we analyzed reports from the National
Association of Insurance Commissioners (NAIC) and National Council on
1On January 31, 2020, the Secretary of Health and Human Services declared a public

health emergency for the United States, retroactive to January 27. On March 11, 2020, the
World Health Organization characterized COVID-19 as a pandemic. According to the
Centers for Disease Control and Prevention, a pandemic refers to a disease event in
which more cases of the disease than expected spread over several countries or
continents, usually involving person-to-person transmission and affecting a large number
of people. The U.S. public health emergency ended on May 11, 2023.

2Pub. L. No. 116-136, div. B, § 19010, 134 Stat. 281, 579-81 (2020). All of GAO’s reports

related to the COVID-19 pandemic are available on GAO’s website at
https://www.gao.gov/coronavirus.

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Compensation Insurance on business interruption coverage and COVID19-related insurance claims and University of Pennsylvania data on
contested claims. We also interviewed insurers, insurance brokers, and
other industry participants. To address the second and third objectives,
we held virtual expert panel discussions with a total of 17 participants to
obtain views on the benefits and challenges of federal insurance and
noninsurance approaches to address business losses from a pandemic.
Panel members included insurance industry participants (insurers,
reinsurers, insurance brokers, businesses, or related associations),
actuaries, insurance experts, NAIC staff, and government officials. In
addition, we identified policy goals, which we used to analyze the benefits
and challenges of these approaches.
For these objectives, we also compared characteristics of pandemic
business risk to accepted actuarial criteria for insurability, analyzed
industry and other proposals for federal pandemic insurance programs,
and reviewed academic and other studies. We also reviewed prior GAO
work on federal insurance programs and COVID-19 assistance. Appendix
I describes our scope and methodology in greater detail.
We conducted this performance audit from May 2022 to December 2023
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.

Background

Effects of the COVID-19
Pandemic on U.S.
Businesses

The COVID-19 pandemic and related government policies that limited
certain economic activities had a rapid and severe effect on the U.S. and
global economies. Nearly all U.S. states implemented policies to limit
social contact and slow the spread of the pandemic. These policies had
the effect of limiting certain economic activities and closed many
nonessential businesses. Reduced consumer demand early in the
pandemic also led to both temporary and permanent business closures,
particularly among small businesses. The resulting business closures
contributed to immediate and substantial job losses and losses in revenue
for those businesses. Unemployment rose from 5.8 million persons in

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January 2020 to a peak of 23 million in April 2020. 3 Industrial production,
retail sales, and personal income fell dramatically during this period.
Although the pandemic affected all sectors of the U.S. economy, some of
the most impacted sectors included (1) accommodation and food
services; (2) arts, entertainment, and recreation; (3) educational services;
(4) health care; (5) manufacturing; and (6) retail trade. 4

Insurance Lines for
Interruptions to Business
Operations

Several lines of property/casualty insurance can cover losses related to
an interruption in business operations.
•

Business interruption insurance covers losses a business incurs
when it is unable to open for a period of time. 5 Coverage is generally
triggered when a covered event results in physical loss or damage
and causes a business to shut down for a minimum specified period,
generally 2 or 3 days. An insurer typically then pays the policyholder
an amount that represents lost net income and some ongoing
operating expenses for the duration of the suspension of business
operations, up to a specific dollar limit and amount of time (typically up
to 12 months). Business interruption claims often take months or even
years to be fully settled. There is an initial waiting period, after which
lost income must be determined, and payment typically is made after
the business closure has run its course. Business interruption policies
can enumerate specific risks that are covered or can be “all risk”
policies that cover any risks not explicitly excluded.

•

Event cancellation insurance protects a business against expenses
or lost revenue resulting from cancellation or postponement for
reasons beyond the business’s control. Events can include

3Bureau of Labor Statistics, Unemployment Level (UNEMPLOY), retrieved from FRED

system, Federal Reserve Bank of St. Louis, accessed October 10, 2023,
https://fred.stlouisfed.org/series/UNEMPLOY.

4In a previous report, we used information from the 2020 Bureau of Labor Statistics’
Business Response Survey to identify sectors that were most likely to experience adverse
effects to business operations as a result of the pandemic. See GAO, Paycheck
Protection Program: Program Changes Increased Lending to the Smallest Businesses
and in Underserved Locations, GAO-21-601 (Washington, D.C.: Sept. 21, 2021).
5Larger businesses tend to buy business interruption policies tailored to their needs. If

smaller businesses purchase business interruption coverage, they typically do so through
business owners’ policies. Businesses with 100 or fewer employees or with revenues of
$5 million or less are eligible for these policies, which often include coverage for general
liability, property, and business interruption. According to an insurance association,
businesses are typically guided by their agents and brokers when determining the type
and amount of coverage to purchase.

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conferences, concerts, conventions, sporting competitions, and
festivals, and policies can cover causes such as severe weather,
venue unavailability, and labor strikes.
•

Cast and production insurance covers additional expenses an
entertainment industry production must pay to continue operating,
including production delays due to loss of cast or crew, or repair of
damaged sets.

•

Workers’ compensation insurance is among the lines of
property/casualty that cover costs related to a business’s potential
liability for actions it takes or events that occur on its premises. 6 It
protects a business owner from claims by employees who experience
a work-related injury or illness sustained on business premises or
caused by business operations. Workers’ compensation, which differs
depending on state law, typically covers the employee’s medical
expenses, rehabilitation costs, and at least some portion of lost
wages. The coverage is mandatory for most employers in every state
except Texas, according to NAIC.

Traditional insurers, sometimes referred to as admitted insurers, can be
licensed to sell several lines or types of coverage to individuals or
businesses. 7 State insurance regulators oversee admitted insurers,
including for licensing (to do business in the state), financial solvency,
market conduct, and rate setting. For example, the regulators analyze
financial records of insurance companies licensed to do business in their
state to determine if the insurers are financially sound. In many states,
regulators have the authority to disapprove rates for commercial
property/casualty lines (with the exception of workers’ compensation) if
they determine a competitive environment among insurers does not exist.

6Besides workers’ compensation insurance, several other property/casualty insurance
lines cover costs related to a business’s potential liability for actions it takes or events
occurring on its premises, which could be relevant to a pandemic event. For example,
commercial general liability insurance protects businesses from a variety of claims that
can arise during business operations, including allegations of negligence (in relation to
protecting their customers from harm). Directors and officers insurance protects members
of an organization’s board of directors and executives against personal loss if they are
sued for their actions, including for allegations that a company’s response in a given
situation was inadequate or that company statements about exposure to certain situations
were misleading and caused financial injury to shareholders. Finally, trade credit
insurance insures a business’s accounts receivable against the risk of default or
insolvency of a counterparty in a transaction.
7“Admitted insurer” means, with respect to a state, an insurer licensed to engage in the
business of insurance in such state. 15 U.S.C. § 8206(1).

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Nonadmitted insurers, sometimes referred to as surplus lines insurers,
can provide insurance coverage for risks that admitted insurers are
unwilling or unable to cover. These risks can include potentially
catastrophic property damage and liability associated with high-hazard
products, special events, environmental impairment, and employment
practices. 8
Nonadmitted insurers generally are regulated somewhat differently than
admitted insurers. According to NAIC, surplus lines insurers are subject to
regulatory requirements and are overseen for solvency by their
domiciliary state (the state in which they were incorporated) or country,
but surplus lines transactions are regulated through the licensing of
surplus lines brokers. 9 In addition, surplus lines insurers generally have
more freedom to change policy coverages and premium rates than
admitted insurers, according to NAIC. State regulators require both
nonadmitted and admitted insurance companies to maintain specific
levels of capital to continue to conduct business. Unlike with admitted
insurers, surplus lines policyholders may not have access to state
guaranty funds that are available to help pay claims in the event of an
insurer insolvency.

Federal Support to
Businesses during the
COVID-19 Pandemic

Congress enacted six COVID-19 relief laws that, in part, provided funding
for several programs to help businesses. 10 Several federal agencies
administered the programs, including the Small Business Administration
(SBA), which delivered $1.2 trillion to small businesses through the
Paycheck Protection Program (PPP), COVID-19 Economic Injury Disaster
Loan program (COVID-EIDL), Restaurant Revitalization Fund, and

8In most states, surplus lines insurers cannot write insurance coverage that is available

from admitted insurers and only may write coverage rejected by a number of admitted
insurers, according to NAIC.

9NAIC states these brokers are responsible for ensuring that the surplus lines insurer

meets eligibility criteria to write policies in the state and is financially sound. State
insurance departments may have authority to suspend, revoke, or not renew the license of
a surplus lines broker or producer.

10In 2020 and 2021, Congress passed the following laws providing COVID-19 relief:
American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4; Consolidated
Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (2020); Paycheck
Protection Program and Health Care Enhancement Act, Pub. L. No. 116-139, 134 Stat.
620 (2020); CARES Act, Pub. L. No. 116-136, 134 Stat. 281 (2020); Families First
Coronavirus Response Act, Pub. L. No. 116-127, 134 Stat. 178 (2020); and Coronavirus
Preparedness and Response Supplemental Appropriations Act, 2020, Pub. L. No. 116123, 134 Stat. 146.

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Shuttered Venues Operators Grant Program. 11 Other federal support to
workers or businesses included expanded and enhanced unemployment
insurance benefits for individuals, tax relief measures for businesses, and
payroll and other support for the aviation industry and transportation
services. 12

Insurability Criteria

Insurability refers to the feasibility of creating insurance contracts to
transfer risk from policyholders to insurers. Actuarial criteria for
insurability include the following: 13
•

Fortuitous: The timing and location of future events that might trigger
a loss must be uncertain and accidental.

•

Measurable: Losses must be well defined and verifiable upon
occurrence.

•

Independent: Policyholders within the portfolio must be independent
from each other, or at least have very weak correlation. That is, the
same event generally should not cause losses for multiple
policyholders.

11PPP delivered $792 billion in forgivable loans to eligible small businesses and nonprofit
organizations to provide economic support due to the pandemic, and COVID-EIDL
provided over $405 billion loans and advances. The Restaurant Revitalization Fund
provided about $29 billion in award funds to businesses in the food service industry to use
for eligible expenses such as payroll, business debt, maintenance, or construction of
outdoor seating. The Shuttered Venue Operators Grant program provided about $15
billion in grant funds primarily to live performing arts and entertainment businesses to use
for eligible expenses such as payroll, rent or mortgage, and utility payments. See Small
Business Administration, Protecting the Integrity of the Pandemic Relief Programs: SBA’s
Actions to Prevent, Detect and Tackle Fraud (Washington, D.C.: June 2023).
12From March 2020 through April 30, 2023, the six COVID-19 relief laws provided over
$4.6 trillion to help the nation respond to and recover from the pandemic.
13Aditya Khanna, Brian A. Fannin, and Tim Wei, “On Insurability and Transfer of
Pandemic Business Interruption Risk,” Casualty Actuarial Society Research Brief (2021).
The brief summarizes criteria for insurability established and explained in actuarial
literature. It notes that some insurance products do not meet all the criteria (such as
products made possible or offered with the support of public funds). The authors identify
two additional economic criteria, which state that coverage should be fair (there should be
very limited potential for adverse selection or moral hazard in the policy portfolio) and
affordable (the price of coverage must be attractive to both insurers and policyholders).
Adverse selection occurs when businesses that would be most affected by the covered
event disproportionately enroll in coverage. Moral hazard is the potential that having
insurance coverage results in policyholders acting in a riskier way or failing to take steps
to minimize losses.

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•

Market-bearable: The maximum possible losses in an accident year
from the insured event must not be so excessive that insurance
markets cannot absorb them.

•

Predictable: Ideally, losses must be estimable, which requires a
sufficient number of policyholders across a sufficiently large number
of historical events to be used as sample data.

When insurers cannot meet the insurability criteria for a specific risk, they
are more likely to have difficulty offering coverage or may not offer
coverage at all.

Private Insurance
Played a Limited Role
in Addressing
Pandemic Business
Losses

Business Interruption
Insurance Mostly Did Not
Address COVID-19
Losses, but Other Lines
Offered Coverage

According to one report, global insured pandemic-related losses resulted
in payment of about $35 billion in property/casualty insurance claims by
October 2021. 14 This represented less than 1 percent of the total
economic impact of the pandemic, leaving an overwhelming portion of
losses not covered by insurance.

Business Interruption
Insurance

Most business insurance policyholders did not have coverage for
business interruption, and the vast majority of policies with coverage
required physical loss or excluded losses attributed to viruses and other
microorganisms. According to NAIC, about 30–40 percent of small

14Howden Broking Group Limited, Times Are A-Changin’ (London, England: Jan. 4, 2022);

https://www.howdengroup.com/sites/g/files/mwfley566/files/2022-01/Howden-times-are-achangin-report-20220104-FINAL.pdf.

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businesses purchase business interruption coverage. 15 Generally,
business interruption insurance did not cover pandemic losses because
typical coverage requires physical loss or damage to commercial property
to pay a claim, and insurers did not consider COVID-19 to have caused
physical loss or damage. 16 According to NAIC data, as of December 31,
2019, about 98 percent of traditional business interruption policies
required physical loss. 17 The data also show that about 83 percent of
policies had virus exclusions. 18 In addition, 98 percent of the policies with
business interruption coverage were for small or medium businesses.
This is consistent with SBA’s estimate of the percentage of all businesses
with 500 or fewer employees. 19
Relatively few policyholders with business interruption insurance filed
pandemic-related claims, and insurers paid out on very few of those
claims. According to NAIC data, less than 3 percent of such policyholders
15We estimated that 36 percent of commercial premiums written in 2019 corresponded to

premiums for policies with business interruption coverage. In addition, the Insurance
Services Office—a licensed advisory organization that serves as an appointed statistical
agent for multiple states—estimated that about 40 percent of multiline commercial policies
had some level of business interruption coverage in 2018. This estimate was based on
insurer data representing approximately 50 percent of the property/casualty insurance
market. In its analysis, the office found that 29.5 percent of small businesses, 53.5 percent
of mid-sized businesses, and 76.8 percent of large businesses had business interruption
coverage in 2018. The office defined small businesses by the portion of the premium
corresponding to fire coverage: less than $1,000 were categorized as small, those of
$1,000–$9,999 were categorized as medium, and $10,000 and over were large. It also
found the number of policies with such coverage in urban areas was three times that of
rural areas.
16Before the pandemic, a robust market did not exist for nondamage business interruption
insurance (that is, coverage that did not require physical damage to a property). One such
product became available in 2018 when Munich Re, Marsh, and Metabiota jointly offered a
product called PathogenRX, but only one policy was sold.
17In April 2020, NAIC issued a data call to the insurance industry in 48 states, the Virgin
Islands, and the District of Columbia requesting data from June through November 2020
to understand the relative size of the U.S. business interruption insurance market, the
extent of exclusions related to the COVID-19 pandemic, and potential pandemic-related
insured losses due to business interruption coverage. New Mexico and New York did not
participate in the data call.
18In 2006, following the 2003 outbreak of severe acute respiratory syndrome, the
Insurance Services Office (which also provides the insurance industry with standardized
policy forms and endorsements) introduced a virus and bacteria exclusion for commercial
property lines.
19NAIC specifies business size by number of employees. Small businesses have 100 or
fewer employees, medium businesses have 101–500 employees, and large businesses
have 501 or more employees. In 2023, SBA estimated that 99 percent of all U.S.
businesses had 500 or fewer employees.

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(about 210,000 policies) filed pandemic-related claims from January
through November 2020. Of those claims, less than 2 percent (or about
3,600 claims) were closed with payment by the insurer. Insurers paid an
average of $115,000 per claim, for a total of about $420 million as of
November 2020.
Some policyholders contested business interruption claims denied by the
insurer, but as of October 23, 2023, courts generally ruled in favor of
insurers in each case’s most recent decisions. According to data from the
University of Pennsylvania’s COVID Coverage Litigation Tracker,
businesses brought 2,389 court cases related to insurers’ denied
pandemic-related claims of any type. 20 Policyholders from all except six
states contested claims denied by the insurer by filing court cases, but
nine states each had at least 100 cases, representing 72 percent of all
cases, according to the University of Pennsylvania data. 21 Over 90
percent of these cases included business interruption insurance among
the coverages insurers had denied. 22
As seen in figure 1, the largest percentages of claims contested in courts
were from the accommodation and food service (37 percent), health care
and social assistance (about 15 percent), retail trade (about 8 percent)
and arts, entertainment, and recreation (7 percent) sectors—all highly
affected by the pandemic.

20As of October 23, 2023, the tracker could be accessed at https://cclt.law.upenn.edu/.
This dataset contains all federal cases but may not capture all state cases because of the
fragmented and incomplete nature of state court electronic filing and data sharing.
21These states were California, Florida, Illinois, New Jersey, New York, Ohio,

Pennsylvania, Texas, and Washington.

22About 4 percent of cases were for denied event cancellation claims.

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Figure 1: Pandemic-Related Business Interruption Insurance Claims Contested in
Courts, by Industry Sector (March 2020–October 2023)

Most cases of contested business interruption claims (about 65 percent)
were filed in federal courts, and federal appellate courts ruled in favor of
insurers in all the cases’ most recent decisions, according to the
University of Pennsylvania data. The remaining cases were filed in state
courts. In their most recent rulings, state appellate-level courts in three
states (Vermont, Pennsylvania, and California) ruled in favor of
policyholders in at least one case each, although some of these cases
were not fully resolved as of October 23, 2023. As of the same date, in 21
states and the District of Columbia, all the most-recent appellate-level
court rulings went in favor of insurers. 23
Some states sought to help policyholders by urging or requiring insurers
to clarify which COVID-19 losses were and were not covered under their
existing insurance policies. For example, in March 2020, state insurance
regulators in New York required insurers to inform policyholders about
whether their insurance policies covered COVID-19 losses, and to what
extent. In May 2021, New Jersey enacted a law that requires insurers and

23Appellate courts in the remaining 26 states had not issued a decision as of October 23,
2023.

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the New Jersey Department of Banking and Insurance to explain
business interruption insurance to policyholders.

Event Cancellation Insurance

Insurers paid some claims on event cancellation insurance policies,
although comprehensive U.S. data on event cancellation claims are not
publicly available. 24 According to specialty insurers, brokers, and
businesses, before the COVID-19 pandemic insurers typically offered a
virus endorsement—that is, an option providing coverage for
communicable diseases or other specific risks.
One example of large U.S. events covered by event cancellation
insurance was the National Collegiate Athletic Association’s 2020 winter
and spring championships. In March 2020, these events, including the
annual men’s March Madness basketball tournament, were cancelled due
to the COVID-19 pandemic. The tournament had been expected to bring
in more than $800 million, and the association received a $270 million
payout. 25
According to the Business Continuity Coalition, which represents
business insurance policyholders, event cancellation coverage is critical
for nonprofit associations because they often rely on events for
fundraising. One representative from a nonprofit association told us the
association received a pandemic-related payment from its event
cancellation coverage, which it typically buys to insure against unforeseen
cancellations of its conferences.

Workers’ Compensation
Insurance

Insurers generally paid pandemic-related claims on workers’
compensation policies. Workers’ compensation insurance generally has
no exclusions except for losses caused by war, but losses caused by
communicable diseases traditionally have not been payable under this

24Globally, as of February 2022, insurers and reinsurers paid $6.5 billion for event

cancellation claims due to the pandemic, according to a large insurance broker.

25There are also two notable international examples of payouts. The organizers of the

Wimbledon tennis tournament in London cancelled the 2020 tournament due to COVID-19
and reportedly received an insurance payout. The organizers of the 2020 Tokyo Olympics
postponed the event, originally scheduled for 2020, and reportedly received an insurance
payout related to the postponement.

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coverage. 26 However, using legislation or executive orders, 20 states
established presumptions stating that, for employees in certain roles or
with certain responsibilities who contracted COVID-19, it would be
assumed they contracted it at their job site, according to the National
Council on Compensation Insurance. The presumptions generally
covered first responders, healthcare providers, and other essential
employees. However, according to the National Council on Compensation
Insurance, claims were paid both in states with and without presumptions.
According to the National Council on Compensation Insurance, insurers
paid more than $1.1 billion for more than 117,000 COVID-19-related
workers’ compensation claims in 45 jurisdictions in the United States in
2020 and 2021. 27 Both the number and amount of claims were small
compared with non-COVID-19 claims in the same period, largely due to
the number of pandemic-related claims for lost wages only (those without
a medical payment component). Over 40 percent of COVID-19-related
claims were for lost wages only, while most non-COVID-19 claims were
for medical only. 28 More than 70 percent of COVID-19-related claims
were from the health care sector.

Insurers Have Reduced
Exposures to Business
Pandemic Losses

The commercial property/casualty market in general hardened before the
onset of the COVID-19 pandemic in 2020, and it remained hard as of
August 31, 2023, according to industry reports. 29 Insurance and
reinsurance premiums increased, and coverage became more restrictive
for a number of property/casualty insurance lines. But insurance brokers
noted that premium increases in several broader commercial insurance
lines likely were not solely attributable to the pandemic. The brokers
reported that inflation and higher-than-normal natural catastrophe and
26According to an insurance association, workers’ compensation systems generally did
not cover losses due to workers contracting communicable diseases such as influenza
(because workers could contract outside of work). Various states have codified that
communicable diseases are outside the bounds of coverage. See Andrew Pauley,
“COVID-19 Workers’ Compensation Presumptions: A Survey and Analysis of Their
Indelible Impact,” National Association of Mutual Insurance Companies (Dec. 1, 2020).
27The National Council on Compensation Insurance, et. al., COVID-19 and Workers
Compensation: Phase II of the Multibureau Collaboration. The National Council on
Compensation Insurance data did not include workers’ compensation claims from
Massachusetts, New York, North Dakota, Ohio, Washington, and Wyoming.
28The average medical payout for COVID-19 claims in 2021 was less than 25 percent of

the average medical payout for non-COVID-related claims.

29A hardening insurance market generally is characterized by increasing prices and
stricter underwriting standards.

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cyber insurance claims in 2020 and 2021 likely contributed to the
increase in commercial insurance premiums. 30
According to stakeholders, property/casualty insurers generally have
taken steps to fully restrict or limit their exposures to future pandemic
losses since the onset of the COVID-19 pandemic. As a result, some
businesses have been operating with more uninsured risk than desired,
because coverage is either unavailable or unaffordable.
•

Industrywide, insurers and reinsurers generally added or revised
physical damage requirements or virus exclusions to their business
interruption policies to further clarify they do not cover pandemic
events, according to brokers and a reinsurer.

•

Endorsements covering communicable disease for some policies,
such as event cancellation, generally were no longer available or were
available at higher prices and with lowered coverage limits soon after
the beginning of the pandemic, according to associations of brokers
and policyholders we interviewed. Some large reinsurers still were
offering explicit pandemic risk coverage for event cancellation, but the
coverage was costly and insufficient to allow insurers to meet
policyholder needs, according to brokers and policyholders. As a
result, some policyholders were left holding more of the risk.

•

Insurers and reinsurers told us they reviewed various lines of
insurance to determine whether correlation of risk in a pandemic—that
is, many claims filed at the same time—could produce excess
exposure. In response, they made virus exclusions more explicit in
those lines to reduce future risk and exposure. Policyholders also told
us some insurers expanded exclusions to include any kind of
communicable disease or microorganism in any insurance line.

In response to the tightened insurance market, businesses increasingly
have created captive insurance companies. 31 For example, a major
insurance broker reported a historic increase in the number of captives in
2020, which continued into 2021 and 2022. The growth occurred in
30One large broker wrote that the global pandemic, combined with increasing social and
political unrest, lower investment yields, increasing concerns about climate change, more
frequent catastrophic weather events, and higher losses from such events, heightened
risk aversion worldwide. Howden Insurance Brokers Limited, Hard Times (London,
England: Jan. 4, 2021).
31Captives are special-purpose insurance companies set up by businesses to self-insure

risks arising from the owners’ business activities. Forming a captive is not financially
feasible for some businesses.

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multiple business sectors. The broker reported that existing captives also
saw increased premium growth in this time frame, suggesting
organizations were transferring more of their risk to the captive
companies. Types of coverages purchased through captives included
event cancelation, liability, and property coverage (which could include
business interruption insurance). For instance, the National Collegiate
Athletic Association formed a captive insurance company in March 2022
to cover risks typically covered by event cancellation and liability policies.

Proposals to Increase
Insurer Response to
Pandemics Have Not
Been Implemented

Legislators in 16 states and Puerto Rico introduced bills in 2020 or 2021
to require insurers to cover COVID-19 losses under existing business
interruption policies, according to an analysis by the National Conference
of State Legislatures. Some of these bills would have eliminated virus
exclusions, some would have eliminated the physical loss or damage
requirement, and some were retroactive. Staff from another insurance
association that tracked these bills told us that none of them passed.
According to an industry report, some insurance stakeholders have
concerns that retroactively modifying insurance contracts could present
legal issues, including potential constitutional issues. 32
Two bills also were introduced in the U.S. House of Representatives,
neither of which was enacted. One would have required business
interruption insurers to add coverage for pandemic and governmentordered business shutdowns and nullified any current exclusions. 33 The
other would have provided support for insurers to voluntarily pay for
losses due to government-mandated shutdowns for policies that excluded
virus coverage. 34
Early in the pandemic, insurers, insurance industry trade groups,
policyholder groups, and Members of Congress developed proposals or
concepts to establish a federal insurance program to cover business
losses during a pandemic. Several proposals had insurers and the federal
government sharing risk, while at least one proposal had the government
holding all the risk. None of the programs were implemented.
•

The Business Continuity Protection Program, proposed by insurance
associations, would cover payroll, benefits, and expense support to

32Committee on Capital Markets Regulation, Pandemic Business Interruption Insurance
(Cambridge, Mass.: 2021).
33Business Interruption Insurance Coverage Act of 2020, H.R. 6494 (116th Cong.).
34Business Interruption Relief Act of 2020, H.R. 7412 (116th Cong.).

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the private sector in the event of a federally declared public health
emergency. Under this proposal, the government would have held all
the risk.

Stakeholders Regard
Business Interruption Risk
from Pandemics as
Largely Uninsurable

•

The Pandemic Business Interruption Program, proposed by a major
insurer, would have featured different programs for small businesses
(500 or fewer employees), and those businesses with more than 500
employees.

•

A draft concept for facilitating pandemic protection, proposed by a
major insurer, would have allowed insurers to choose how much risk
to bear.

•

The Pandemic Risk Insurance Act of 2020, introduced in the House of
Representatives as H.R. 7011 in May 2020, would have established a
Pandemic Risk Reinsurance Program loosely modeled on the
Terrorism Risk Insurance Program. 35

•

The Business Continuity Coalition proposal, proposed by an
association of policyholders, would have made coverage for
pandemic-related losses available in a broad range of insurance
policies.

Analyses by actuaries, insurance experts, insurers, and reinsurers
generally agree pandemic-related business interruption risk is largely
uninsurable because it does not meet several criteria for insurability. 36 In
particular, because of the potentially large size of pandemic-related
business losses such risk is not market-bearable. That is, insurers
cannot absorb possible annual business losses from a future pandemic,
at least one resembling the COVID-19 pandemic.

35H.R. 7011 (116th Cong.).
36See Aditya Khanna, Brian A. Fannin, and Tim Wei, “On Insurability and Transfer of
Pandemic Business Interruption Risk,” Casualty Actuarial Society Research Brief (2021);
Organisation for Economic Co-operation and Development, “Responding to the COVID-19
and Pandemic Protection Gap in Insurance” (Paris, France: updated Mar. 16, 2021); KaiUwe Schanz, “An Investigation into the Insurability of Pandemic Risk,” (Zurich,
Switzerland: The Geneva Association, October 2020); Robert Hartwig and Robert Gordon,
“Uninsurability of Mass Market Business Continuity Risks from Viral Pandemics,”
American Property Casualty Insurance Association (2020); Gunther Kraut, Paulina La
Bonte, and Andreas Richter, “Pandemic risk management and insurance,” working paper
(Munich, Germany: May 24, 2023); Lisa Slotznick, American Academy of Actuaries, letter
to Hon. Maxine Waters and Hon. Patrick McHenry, Committee on Financial Services, U.S.
House of Representatives (May 11, 2020); and Denis Kessler, “Why Pandemic Risk Is
Uninsurable” (Jan. 15, 2021)—accessed on May 2, 2023, at
https://www.scor.com/en/expert-views/why-pandemic-risk-uninsurable.

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For example, the assistance provided by PPP—the largest COVIDrelated emergency assistance program for businesses—and other major
SBA emergency assistance programs exceeded the total capital held by
U.S. property/casualty insurers at the end of 2022. Specifically, the
programs together provided approximately $1.2 trillion in COVID-related
assistance to businesses. 37 In comparison, the U.S. property/casualty
insurance industry’s available capital was approximately $1 trillion at the
end of 2022. 38 However, this total includes capital needed to cover
exposures across all property/casualty lines of coverage, such as
automobile and homeowners, and not just business insurance.
Furthermore, potential pandemic business losses could far exceed losses
covered under current federal insurance programs. PPP provided $792
billion in assistance from April 2020 through June 2021. 39 This amount is
much larger than the largest single-year losses experienced by the
National Flood Insurance Program, which paid about $17.8 billion in
claims in 2005 primarily to cover losses caused by hurricanes Katrina,
Rita, and Wilma. 40 Similarly, the Federal Crop Insurance Program’s
largest single-year losses were in 2022, when the program paid
approximately $20 billion in claims—a fraction of PPP assistance. 41
Lastly, while the Terrorism Risk Insurance Program had not paid any

37As stated earlier, SBA’s four largest pandemic relief programs were PPP ($792 billion),

COVID-EIDL ($405.2 billion), the Restaurant Revitalization Fund ($28.6 billion), and the
Shuttered Venue Operators Grant program ($14.6 billion). SBA estimated about $36
billion (almost 3 percent) in improper payments for fiscal year 2022, including fraud,
associated with these programs. After subtracting such payments, the programs still
provided about $1.2 trillion in assistance to businesses.
38This does not include capital held by reinsurers or nonadmitted insurers.

39This number is reduced to $763 billion after subtracting $29 billion in estimated improper
PPP payments for fiscal year 2022.
40The National Flood Insurance Program was created by Congress in 1968 to promote the
availability of flood insurance on reasonable terms and conditions. Private insurance
companies sell and service the policies, but they do not share any of the risk of loss.
41Congress established the Federal Crop Insurance Program in 1938 in response to the

Great Depression. The program helps agricultural producers limit the risk associated with
low crop yields, lower-than-expected revenues, or both. Private insurance companies sell
and service crop insurance policies and can chose to share in some gains and losses
through a standard reinsurance agreement with the federal government.

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claims as of October 31, 2023, estimates of potential program costs also
are far lower than PPP assistance. 42
According to the analyses, pandemic business interruption risk also fails
to meet other criteria for insurability. For example, they found this risk is
not independent because a pandemic is geographically spread across
nations, with a high percentage of policyholders experiencing losses at
the same time. Insurers are therefore unable to spread risk among their
policyholders, which many insurers say is necessary to provide coverage.
The analyses also conclude that pandemic business risk is not easily
predictable. Insurers generally are unable to accurately estimate the
frequency and severity of such events, which is necessary for pricing
coverage. According to one analysis by actuaries, this is the most
challenging insurability criterion for pandemic risk. Another analysis states
a high level of uncertainty relates to the frequency and severity of
infectious disease outbreaks. It notes that, while the insurance sector has
developed a strong capacity for modeling the financial consequences of
certain catastrophic risks, existing risk-modeling techniques cannot
accurately project losses from future pandemics. One group of risk
modelers also stated that modeling losses from future pandemics
involves a high degree of uncertainty. They said it is particularly difficult
because losses depend on the characteristics of the pathogen, including
the way transmission occurs and adapts over time, and consumer and
local government responses. They stated pandemic risk models are very
difficult and expensive to produce, because estimating losses may require
access to a large volume of private industry data, considerable software
and computing capability, and industry expertise.
In addition, some analyses found that aspects of the risk are not
fortuitous because they involve government lockdown measures, which
are not accidental. Lastly, one analysis by actuaries stated that pandemic
risk is not easily measurable, because quantifying the size of business
42In the Terrorism Risk Insurance Program, created after the terrorist attacks of

September 11, 2001, the federal government shares risk with private insurers to cover
business losses stemming from certified terrorist attacks. The Federal Insurance Office,
which assists the Secretary of the Treasury in administering the program, annually
requests loss estimates from insurers for policies that would be affected by a specified
hypothetical terrorism scenario. As of October 31, 2023, the 2016 scenario had the
highest estimated cost at about $37 billion in claims, based on a hypothetical terrorist
attack in New York City. The program has a maximum aggregate exposure for both
insurers and the federal government arising from insured losses for an act or acts of
terrorism. As of December 1, 2023, this program cap was $100 billion during any calendar
year.

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losses in a potential future pandemic would present significant
challenges. 43 However, as discussed in more detail later, insurers could
address this challenge by offering parametric coverage, in which the
occurrence of a specific event would trigger payments that were predetermined based on the size of the event.

Challenges to Federal
Pandemic Insurance
Would Include
Affordability,
Participation, and
Feasibility of Risk
Sharing

Two broad approaches exist for establishing a federal insurance program
that responds to pandemic business losses, based on our analysis of
existing federal insurance programs and selected proposals for a federal
pandemic insurance program:
•

Risk-sharing insurance approach. This approach includes
insurance with risk sharing, whereby private insurers and the federal
government each would assume some pandemic risk and private
insurers would administer the program.

•

Insurance approach with no risk sharing. This approach involves
the federal government assuming all the risk of a pandemic insurance
program, with private insurers administering the program but not
assuming any of the risk. 44

We also identified five policy goals that we used to analyze the potential
benefits and challenges of the two broad insurance approaches:
1. Ensure widespread, sufficient, and affordable insurance or
assistance. 45
2. Promote efficiency, transparency, and accountability.
43Quantifying losses would entail tracing insured businesses’ financial transactions from

the beginning to the end of a pandemic. According to an analysis by property/casualty
actuaries, determining the beginning and the end of a pandemic might be challenging,
particularly if a virus or other pathogen spread in multiple waves. See Aditya Khanna,
Brian A. Fannin, and Tim Wei (2021). As discussed later, quantifying actual business
losses for potentially millions of businesses that are likely to be affected approximately at
the same time might present significant challenges.

44These broad approaches can be thought of as alternative approaches to designing a
federal insurance program. For example, among current federal programs, the Terrorism
Risk Insurance Program is structured as a risk-sharing insurance approach. In contrast,
the National Flood Insurance Program is structured as a federal insurance program with
no risk sharing, although reinsurers bear some risk. However, a federal insurance
program could be structured to have aspects of both approaches, with participating
insurers bearing no risk or some risk.
45The next section in the report analyzes potential approaches other than insurance

(noninsurance approaches) to providing businesses with assistance in future pandemic
events.

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3. Promote risk mitigation and limit moral hazard.
4. Reduce federal fiscal exposure or cost.
5. Promote private-sector participation.
To inform our analysis, we obtained the views of industry participants—
insurers, reinsurers, brokers, businesses, and associations representing
these entities—insurance experts, NAIC staff, and officials from the
Department of the Treasury’s Federal Insurance Office. 46 We refer to
these individuals collectively as stakeholders, unless otherwise noted.

Achieving Affordability
Might Be Costly and Not
Guarantee Widespread
Business Participation
Nature of Pandemic Events
Increases Premiums

Affordable premiums would be necessary to attain widespread
participation in a federal pandemic insurance program. However,
actuarially determined premiums, whether charged by the federal
government or insurers, likely would be very high and unaffordable,
according to our analysis. Premiums would be high for at least two
reasons.
First, as mentioned earlier, losses from a risk like a pandemic are not
easily predictable in terms of their frequency and severity. Insurers need
to estimate the frequency and severity of events to accurately price
coverage and make decisions on the amount of capital and provisions to
set aside and the level of reinsurance protection required. When they
cannot, they assume higher losses, because assuming lower losses and
being wrong could risk the financial soundness of the insurance company.
As a result, insurers generally charge higher premium rates when losses
are less predictable.
Second, business losses from a pandemic are highly correlated, meaning
a high percentage of an insurer’s policyholders are likely to file claims at
the same time. Normally, only a small percentage of policyholders file
claims in any given year, allowing an insurer to spread the risk of loss
among a large group of policyholders. The less an insurer can spread risk

46We based our analysis on information from relevant studies and other documents and

information we gathered through two panel discussions and multiple interviews. See
appendix I for more information.

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among policyholders, the more it generally must charge each individual
policyholder.
Two reinsurers told us that the modeling challenges are not
insurmountable. However, they also said if the premium rates were
actuarially determined, they would be so high as to be unaffordable. That
is, even if an insurer were to cover only a small portion of a larger risk, it
still would face predictability and independence challenges. As a result,
the premiums it would need to charge to insure that small risk likely would
be unaffordable for the amount of coverage provided.

Making Coverage Affordable
Could Be Costly for the
Government

To make pandemic premiums affordable to businesses, the federal
government could choose to help businesses pay for actuarially
determined (and likely expensive) premiums or could offer free or
discounted premiums. This could be done in several ways.
•

A federal insurance program could charge an actuarially determined
premium and the government could help businesses pay that
premium, as needed. 47 For example, a government-funded
affordability program could offer assistance based on some measure
of need. Premiums reflective of risk, in combination with assistance to
businesses to pay those premiums, would allow the government to
account for the exposure created by the program (because it would
have to budget for the cost of the assistance). However, such a
program would introduce administrative costs (such as operating
costs to determine eligibility for assistance).

•

Alternatively, the government could offer free or discounted premiums
for its share of the risk. For years, the National Flood Insurance
Program charged discounted premiums without being able to
determine the amount of the discount, which we identified as
generating fiscal exposure that was not transparent to Congress and
the public. 48 If a pandemic insurance program used such discounted

47Under a risk-sharing program, private insurers presumably would charge actuarially

determined premiums for the risk they would bear. As mentioned above, the government
could help businesses pay for those premiums to achieve affordability.

48See GAO, Flood Insurance: Forgone Premiums Cannot Be Measured and FEMA
Should Validate and Monitor Data System Changes, GAO-15-111 (Washington, D.C.:
Dec. 11, 2014); and Flood Insurance: Comprehensive Reform Could Improve Solvency
and Enhance Resilience, GAO-17-425 (Washington, D.C.: Apr. 27, 2017). For our
analysis of the latest changes to the program’s rate-setting process, see GAO, Flood
Insurance: FEMA’s New Rate-Setting Methodology Improves Actuarial Soundness but
Highlights Need for Broader Program Reform, GAO-23-105977 (Washington, D.C.: July
31, 2023).

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premiums, the costs might not become apparent to Congress until a
pandemic occurred and the program issued payouts. The Federal
Crop Insurance Program is another example of a program in which
the federal government subsidizes insurance premiums. In prior work,
we found that the rate of return earned by participating insurers
exceeded a market-based rate of return. 49
•

Widespread Participation Might
Not Be Achievable

Another option would be for government to create a program that
would not charge premiums but would use a post-event mechanism to
recoup all or some of the federal portion of payments made to
businesses. 50 While this could keep coverage affordable before a
pandemic occurred and potentially lower federal fiscal exposure, this
benefit could be offset if businesses were unable to pay back what
they received from the program. The government could alleviate the
burden to some extent by lengthening the duration of post-event
recoupment to spread payments over time. It also could recoup
payments from a broad base of policyholders (not just those affected)
by collecting payments from all businesses with commercial property
insurance coverage, for example. But a post-event recoupment
mechanism also might reduce take-up rates if businesses were to
forgo coverage to avoid potential recoupment payments.

Even if premium rates could be made more affordable, policymakers
might face challenges ensuring widespread participation by businesses
under insurance approaches, according to our analysis. Take-up rates
among businesses could be low for the following reasons:
•

Businesses might not purchase coverage because they
underestimate their risk—that is, they might not believe another
pandemic would happen soon and that it would be worth purchasing

49A market-based rate of return is an annual rate of return, representative of market

conditions, that produces financial earnings equal to earnings from alternative investment
opportunities relative to the risk assumed. See GAO, Crop Insurance: Update on
Opportunities to Reduce Program Costs, GAO-24-106086 (Washington, D.C.: Nov. 7,
2023); and Crop Insurance: Opportunities Exist to Improve Program Delivery and Reduce
Costs, GAO-17-501 (Washington, D.C.: July 26, 2017). The 2017 report contains, and the
2023 report reiterates, a matter for congressional consideration that would allow the
government to adjust insurance companies’ expected level of compensation to reflect
market conditions. As of September 30, 2023, the matter remained open. For a brief
summary of our work on this program, see GAO, Farm Bill: Reducing Crop Insurance
Costs Could Fund Other Priorities, GAO-23-106228 (Washington, D.C.: Feb. 16, 2023).

50For example, under the Terrorism Risk Insurance Program, neither insurers nor the
federal government charge policyholders for federal coverage of terrorism risk. But the
government either must or may (depending upon the amounts paid by industry) recoup its
losses after a terrorist event through premium surcharges on all policyholders.

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coverage in a given year. Several studies have noted that infrequent
events can change entities’ perceptions of the expected benefit of
purchasing insurance. As a result, decision-makers often
underestimate low-probability, high-impact events and frequently
deem insurance premiums reflecting these risks as too high. 51
According to another analysis, underestimation of pandemic risk could
occur for many reasons, including underestimating the probability of a
pandemic, the speed or extent to which a pathogen will spread, or the
probability or duration of government-imposed orders intended to limit
the spread of the pandemic. Additionally, businesses could be overly
optimistic about the ability of scientists to develop treatments and
vaccines.
•

Businesses also might forgo coverage because they believed that the
government would make assistance programs available to them if
another pandemic occurred. Given the federal response to COVID-19,
it is possible that businesses would expect some form of government
assistance should the nation experience a pandemic with similar
devastating economic effects.

Although the experience of COVID-19 has increased businesses’ interest
in the availability of pandemic insurance, stakeholders’ views differed on
the ability of a voluntary program to reach and sustain high take-up rates.
For example, a representative from a policyholder association stated that,
given the pandemic’s devastating effects, he believes many businesses
likely would participate in a federal pandemic insurance program. An
insurance broker representative agreed that take-up could be high. As an
example, they pointed to the 60 percent take-up rate for the Terrorism
Risk Insurance Program. This high take-up rate can be attributed in part

51See for example, Kati Kraehnert, et.al., “Insurance Against Extreme Weather Events: An
Overview,” Review of Economics, 72, no. 2: (2021): 71–95; Katherine R.H. Wagner, “Why
is reforming natural disaster insurance markets so hard?” Stanford Institute for Economic
Policy Research Policy Brief (July 2020); Justin Gallagher, “Learning about an Infrequent
Event: Evidence from Flood Insurance Take-Up in the United States,” American Economic
Journal: Applied Economics, 6, no. 3 (2014): 206–233; and Howard Kunreuther, and Mark
Pauly, “Neglecting Disaster: Why Don’t People Insure Against Large Losses?” Journal of
Risk and Uncertainty, 28, no. 1 (January 2004): 5-21.

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to the low cost of coverage and many lenders requiring businesses to
have coverage for terrorism risk as a condition for a mortgage loan. 52
However, others believed many businesses might not buy coverage. For
example, one restaurant industry representative believed that even if
pandemic coverage were available for a relatively affordable price, many
cash-strapped restaurants would not opt for coverage. He explained that,
although COVID-19 made restaurants aware of pandemic risk, many
restaurants operate at low margins and are highly dependent on cash
liquidity to operate. Consequently, he believed many restaurants would
not want to use available funds to purchase pandemic insurance.
Some stakeholders also noted the need to provide incentives for
participation in designing a federal insurance program. For example,
some stakeholders stated the government would need to ensure
businesses had both incentives to buy coverage or disincentives to forgo
insurance and take advantage of other federal assistance. One study
noted that if federal aid were comparable to insurance payouts, it would
raise equity concerns and create a disincentive to purchase coverage.
One way to avoid this and to provide incentives for business participation
would be to keep federal assistance below insurance payouts, as is the
case with Federal Emergency Management Agency disaster grants and
National Flood Insurance Program insurance payments. 53 Another way
would be to make clear that businesses must participate in the insurance
program to receive pandemic assistance or to limit such assistance if
businesses did not buy pandemic insurance. However, this might be a
52According to Treasury, the take-up rate for the Terrorism Risk insurance Program

measured as a percent of direct earned premiums was 60 percent in 2021. That is, of the
total direct earned premiums from program-eligible lines of insurance, 60 percent had the
coverage. Premiums for terrorism risk insurance embedded in a property/casualty policy
are priced at a relatively small percentage of the total premium charged, and sometimes
coverage is provided at no explicitly-stated additional cost (for example, the cost is
embedded in the total premium). Stand-alone policies vary significantly in cost and
whether they provide coverage under the Terrorism Risk Insurance Program. According to
Treasury, differences in cost may be due to the relative size or nature of exposures
covered under each policy, among other potential reasons. See Department of the
Treasury, Federal Insurance Office, Report on the Effectiveness of the Terrorism Risk
Insurance Program (Washington, D.C.: June 2022).
53The average flood insurance claim payment in 2017–2021 was approximately $69,000,

according to the Federal Emergency Management Agency. Federal Emergency
Management Agency disaster grants average about $5,000 per household, according to
the agency. Federal disaster assistance in the form of SBA loans is also available but
must be repaid with interest.

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difficult restriction to maintain in the face of the economic effects of a
pandemic.
Another option for increasing insurance take-up rates would be to make it
mandatory for businesses to purchase coverage. However, this may be a
difficult or undesirable solution. Businesses might resist a requirement to
purchase coverage, particularly those that likely would not purchase the
policy voluntarily. In addition, enforcement of mandatory coverage could
create additional unwanted administrative costs.

Insurance Approaches
Could Promote Efficiency
and Risk Mitigation but
Likely Would Face
Implementation
Challenges
Efficiency

Many stakeholders said that insurers’ expertise in processing claims and
payments could help ensure efficient program administration under either
insurance approach. However, some said that the volume of concurrent
losses during a pandemic could overwhelm insurers and significantly
delay the processing and payment of claims.
To help process the large number of claims in a pandemic event, many
stakeholders agreed that polices with parametric loss triggers, rather than
indemnity-based policies (in which losses go through a claims-adjustment
process), would be most appropriate. Indemnity-based policies generally
seek to make a policyholder whole by paying for actual losses (subject to
deductibles and limits). Payment on a parametric policy is triggered by the
occurrence of a specific event, and the payment is pre-determined based
on the size of the event. For example, a parametric policy might pay
$100,000 if an earthquake with magnitude 5.0 or greater occurred. In the
case of pandemics, one analysis suggested that the trigger could be the
declaration of a public health emergency by certain government agencies
in designated areas. The payment to the policyholder would be specified
at the time of contract and could be set at a pre-determined percentage of
its revenues or net income from the previous year. The policyholder could
provide this income information annually when the insurance contract is
renewed.
Many stakeholders agreed that a significant benefit of parametric loss
triggers is that payments to policyholders can be made quickly, often

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within days. This would help ensure rapid distribution of payments to the
potentially millions of affected businesses during a pandemic. Such quick
payments would not be possible with indemnity-based policies, where
each loss would have to go through an often lengthy claims-adjustment
process (which generally requires insurers to assess and estimate losses
after the event occurs).
However, parametric loss triggers have potential downsides. First,
because payouts are not directly tied to losses, payouts might not fully
cover losses or may be higher than actual losses. Second, triggers would
have to be carefully designed to be independent, objectively measurable
immediately after the disaster, and correlated with actual losses. For
example, a pandemic insurance trigger could involve a World Health
Organization declaration of a Public Health Emergency of International
Concern followed by a civil authority restricting public activities within a
covered area, according to a reinsurer. 54 However, during COVID-19,
local authorities’ decisions to impose restrictions varied widely across
U.S. states and localities. Thus, businesses suffering similar losses might
not receive similar payouts under such a trigger if their local authorities
reacted differently. A poorly designed trigger could delay or deny payment
altogether. 55
Even with a successful parametric trigger design, two insurance
associations stated that setting up, maintaining, and distributing
payments, and conducting follow up for potentially millions of contracts in
a relatively short time would be costly and present challenges. First,
54The 2005 International Health Regulations define a Public Health Emergency of

International Concern as “an extraordinary event which is determined to constitute a public
health risk to other states through the international spread of disease and to potentially
require a coordinated international response.”
55For example, the World Bank offered bonds after the 2014–2016 Ebola outbreak in

West Africa to provide financing to certain countries to respond to cross-border, large
scale outbreaks. However, some academics and others criticized the triggering system as
too rigid. For example, the bonds had a 12-week waiting period for some viruses before
payment could occur. And while Ebola was declared a Public Health Emergency of
International Concern in July 2019, the requirements to trigger payments were never met.
About $196 million in COVID-19-related payments were triggered on April 27, 2020. The
World Bank did not renew its pandemic bonds after they matured in July 2020. See
Bangin Brim and Clare Wenham, “Pandemic Emergency Financing Facility: struggling to
deliver on its innovative promise,” The British Medical Journal (Oct. 9, 2019); Louisa Watt,
James Cole, Andrew Baker, “Pandemic Bonds – Failing and In Need of Reform,” Brown
Rudnick LLP (Mar. 27, 2020); Tracy Alloway and Tasos Vossos, “How Pandemic Bonds
Became the World's Most Awkward Investment,” Bloomberg (Dec. 9, 2020); and “The
Pandemic Emergency Financing Facility officially closed on April 30, 2021,” World Bank
Fact Sheet (Apr. 27, 2020).

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insurers would incur costs associated with setting up and maintaining
contracts, including the cost of verifying policyholder information. These
costs could increase premiums and hinder widespread affordability. Or if
the federal government had to compensate insurers, it would add to
federal fiscal costs. 56
Second, an insurer, two insurance associations, and an insurance expert
feared that processing millions of claims in a short time would be beyond
the industry’s capacity. If a federal insurance program imposed
requirements on policyholders—such as that claim payments be used to
retain employees—processing parametric claims and ensuring
compliance for millions of businesses might prove challenging to insurers.
An insurance association cited concerns about reputational or legal risks
related to their handling of a large number of claims so rapidly.

Risk Mitigation

Many stakeholders stated that insurance can be an effective way to
encourage risk-mitigating behaviors. The most direct means of
encouraging risk-mitigating behavior through insurance is offering
reduced premiums for such behaviors. Insurance deductibles and waiting
periods also ensure that the policyholder is responsible for a portion of
any losses, thus further aligning the interests of the insurer and the
insured so that both parties seek to reduce the risk of loss. In addition,
policyholders who are willing to pay higher deductibles generally will
benefit from reduced premium rates.
However, the benefits of risk-mitigation behaviors by businesses might be
limited in the context of pandemics. For example, some stakeholders and
experts noted that certain businesses were limited in the steps they could
take to prevent or reduce losses from a future pandemic. In particular,
businesses most affected by the pandemic—including those requiring
person-to-person contact to operate and create revenue—might be
limited in the actions they could take to minimize the impact of a
pandemic like COVID-19, which included consumer decisions to stay
home, social distancing guidelines, and government shut-down orders.

56Because insurers would administer the program under either a risk-sharing insurance

approach or one without risk-sharing, these costs would present challenges to any federal
insurance program with insurer participation.

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We have noted that the COVID-19 pandemic highlighted the importance
of national efforts to prepare for such events. 57
While some businesses could continue mitigation measures (such as
increasing or adding take-out options at restaurants) or preemptively plan
to take similar actions to minimize the effects of a future pandemic, it is
unlikely that individual business measures would be able to significantly
mitigate losses for these businesses. For example, a restaurant
association representative reported that restaurant take-out revenues
accounted for a larger percentage of restaurant sales in 2023 than they
did in 2019. However, he added that restaurants cannot survive in the
long run if they cannot open their doors to customers.

Moral Hazard

Lastly, there are ways insurance approaches might reduce moral hazard
(the potential that policyholders will act in a riskier way or fail to take steps
to minimize losses if they believe their losses will be covered regardless
of their actions). Moral hazard is the opposite of risk mitigation, so the
same features that provide incentives for risk mitigation could help reduce
the risk of moral hazard. As noted above, deductibles, waiting periods,
and reduced premiums for risk-mitigating behaviors encourage
policyholders to take actions to reduce their losses and, thus, minimize
out-of-pocket costs. Parametric loss triggers also could help limit moral
hazard. Because the policyholder would receive a predetermined payout,
policyholders that undertook mitigation could reduce potential revenue
losses.
On the other hand, payouts that are not affected by policyholder behavior,
as is the case with a parametric trigger, could motivate policyholders to
forgo mitigation activities. We also have noted that if premiums paid by
policyholders do not represent the full risk of loss (for instance, because
of subsidies or affordability assistance), it can lead policyholders to underassess risk and provide less incentives for them to take actions that could
lower losses.

57In prior reports, we made several recommendations that could help better prepare

federal agencies for future emergencies. For example, we recommended that the
Department of Health and Human Services prioritize the development of the public health
situational awareness and biosurveillance network to facilitate sharing data and
information. The network could enhance early detection of and rapid response to
potentially catastrophic infectious disease outbreaks and other public health emergencies.
See GAO, COVID-19: GAO Recommendations Can Help Federal Agencies Better
Prepare for Future Public Health Emergencies, GAO-23-106554 (Washington, D.C.: July
11, 2023). As of October 31, 2023, the recommendation remained open.

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A Risk-Sharing Approach
Could Reduce Fiscal
Exposure, but Insurers
May Be Unwilling to
Assume Much or Any Risk

As described earlier, a federal pandemic insurance program could use a
risk-sharing approach, in which private insurers assumed some of the
risk, or an approach in which the government assumed all the risk.

Potential Benefits of a RiskSharing Approach

Potential benefits of a risk-sharing approach relative to an approach with
no risk sharing include reduced federal fiscal exposure and the
development of private-sector capacity and expertise in modeling and
pricing pandemic risk.
•

Federal fiscal exposure. A risk-sharing insurance approach could
help reduce federal fiscal exposure relative to an insurance approach
with no risk sharing, because the federal government would not pay
all the losses. Instead, the private sector would bear some of the risk
and pay some of the losses, albeit likely a small portion (as discussed
below).
While the scope of the underlying losses is likely different than the
potential losses caused by a pandemic, the Terrorism Risk Insurance
Program is an example of a program in which insurers and the federal
government share risk. Under this program, the government and
insurers share insured losses once the program’s trigger of $200
million is reached and subject to the program cap of $100 billion in the
event of a certified terrorist attack. The federal share of losses
depends on the deductibles of the affected insurers. Many industry
stakeholders told us they supported a risk-sharing insurance
approach over an insurance approach with no risk sharing, in part
because of the potential for limiting, to at least some extent, the
federal government’s fiscal exposure.

•

Insurer capacity. A risk-sharing approach might increase insurance
market capacity for pandemic risk over time, further reducing federal
fiscal exposure. 58 For example, it could kick start private-sector
involvement and a market could develop over time, according to
several stakeholders and analyses. If some insurers began writing
policies and were able to do so profitably, other insurers might be

58According to the International Risk Management Institute, capacity refers to the largest

amount of insurance or reinsurance available from a company or the market in general.
Capacity is determined by both financial strength and the nature of the risk and is also
used to refer to the additional amount of business that a company or the total market
could write based on excess capital (or surplus capacity).

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encouraged to do the same. One insurer said that to facilitate capacity
building, the government would need to set a clear limit for insurer
losses. This might induce insurers to offer limited amounts of
coverage and allay concerns about open-ended coverage that could
threaten their solvency. However, according to an insurance
association analysis and representatives from two other insurance
associations, it likely would take many years to build private insurer
capacity in a risk-sharing insurance program. Consequently, another
pandemic event during that time could result in insured losses that
could cause participating insurers to stop offering pandemic coverage
completely.
Understanding that the number and scope of losses in a pandemic
could be significantly greater than in a terrorist event, Treasury offered
evidence that the Terrorism Risk Insurance Program helped develop
some market capacity. 59 In a 2022 report on the program’s
effectiveness, Treasury observed an increase in reinsurance capacity
for terrorism risk, which was consistent with observations from market
participants. 60
•

Insurer expertise. A risk-sharing approach also could leverage and
provide incentives for further developing insurers’ expertise related to
modeling and pricing pandemic risk. 61 According to the Organisation
for Economic Co-Operation and Development, the insurance sector
has developed a strong capacity for modeling the financial
consequences of catastrophic risks. Consequently, programs that
maximize the role of private insurance markets are more likely to
support the development of a risk modeling industry, because model

59Under the Terrorism Risk Insurance Act, the program was established, in part, to permit

private markets to stabilize, resume pricing, and build capacity. As previously discussed,
the program is structured as a risk-sharing federal insurance program.

60Report on the Effectiveness of the Terrorism Risk Insurance Program (June 2022).
Similarly, according to a 2019 testimony by a representative from the Congressional
Research Service, insurers’ capacity to bear terrorism risk increased over the life of the
Terrorism Risk insurance Program and had been bolstered by earned premiums without
significant claims payments. Treasury estimated that by 2021, such premiums amounted
to almost $60 billion (including $10 billion earned by captive insurers). See House
Financial Services Subcommittee on Housing, Community Development, and Insurance,
Protecting America: The Reauthorization of the Terrorism Risk Insurance Program, 116th
Cong. (Oct. 16, 2019); statement of Baird Webel, Congressional Research Service.
61Under an insurance option with no risk sharing, it is likely that the federal government

still could leverage private-sector expertise by contracting catastrophe modeling firms to
help price coverage.

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availability and sophistication generally is highest where private
insurers play a large role in providing coverage.
Although insurers would participate in both approaches as program
administrators, a risk-sharing approach could better leverage insurer
expertise in modeling catastrophic risks. It also could provide a path
towards improvements in modeling the frequency and severity of
pandemics, which, as mentioned earlier, are difficult to predict.

Challenges to Sharing Risk

However, two large insurance associations said that a risk-sharing
approach might not be feasible. They pointed to the severity of the
economic losses caused by the COVID-19 pandemic and the inability of
insurers to provide large-scale relief to businesses in a pandemic event.
They reiterated that pandemic business risk is neither market-bearable
nor independent, two key insurability criteria (see previous discussion).
Similarly, three insurance experts stated concerns about insurers’
financial solvency should they assume risk of losses from a pandemic.
Some analyses help explain the potential difficulties for insurers of taking
on pandemic business risk. These hypothetical exercises do not reflect
actual exposures or losses for any specific company should a risk-sharing
program exist. However, they help portray the magnitude of the financial
responsibility that would be placed on insurers if they were expected to
share even a small percentage of losses from a pandemic like COVID-19.
As discussed earlier, the size of the losses could exceed the U.S.
property/casualty insurance industry’s available capital, which was
approximately $1 trillion at the end of 2022. 62 This is below the $1.2 trillion
in assistance to small businesses provided through the four main SBA
emergency programs. Based on the amount of minimum capital required
by state regulators in 2022, any losses of over $800 billion could threaten
the solvency of insurers. 63 While sharing risk with the federal government
would reduce total private insurer exposure, the comparison helps put
pandemic business losses into perspective.
An analysis by an academic and an insurance association noted that
such a diversion of capital could introduce systemic instability throughout
the private property/casualty insurance industry, and as a result, the
broader economy. Insurers must maintain sufficient capital to support all
62This does not include capital held by reinsurers or nonadmitted insurers.
63Losses that reduce an insurer’s capital below levels set by state regulators can trigger
various regulatory actions to help prevent insolvency.

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the property/casualty risks they have underwritten as well as investment
and other general business risks. In addition, an analysis by actuaries
noted that because pandemic losses are correlated with declines in the
value of assets, the value of the assets set aside to pay claims could be
impaired as part of the event.
The authors of another hypothetical analysis assumed a pandemic event
with total insured losses of $250–$750 billion and a federal insurance
program with risk sharing in which the largest 100 commercial
property/casualty companies (based on 2019 data) proportionally
assumed some percentage of pandemic risk. The authors found that the
potential losses for many companies relative to their capital surplus could
be high and thus financially problematic for many companies. 64
Two large insurers and two large reinsurers showed interest in
participating in a federal risk-sharing insurance approach, but they all
agreed that the private sector’s collective share of risk assumption likely
would be small. Most noted the importance of being able to individually
decide the amount of risk they could bear responsibly. One insurer noted
the need for a clear cumulative exposure limit acceptable for participating
insurers.
Some estimated the share of total pandemic business risk the industry
could bear as between 1 and 5 percent (approximately $12–$60 billion
based on total loss estimate of $1.2 trillion). Although this percentage
may seem small, it could reduce federal fiscal exposure by billions of
dollars.
As discussed earlier, private insurer capacity might grow over time if
participating insurers found it profitable to participate in the program. But
insurers also could pull out of the program if they suffered losses, shifting
all exposures to the federal government and impeding progress towards
private capacity building.
Importantly, some stakeholders suggested that insurer participation in a
risk-sharing approach should have some mandatory aspect to it to ensure
64In this analysis, individual insurer losses were based on that insurer’s 2019 direct

premiums earned as a percentage of all 100 companies’ direct premiums earned that
year. Insurers collectively paid a deductible equal to 5 percent of their combined direct
premiums earned. They also paid losses above their deductible equal to 5 percent of total
insured losses minus the deductible. See Robert Klein and Harold Weston, “Feasibility
Questions About Government-Sponsored Insurance for Business Interruption Losses from
Pandemics,” Journal of Insurance Regulation, 39, no. 7 (2020).

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widespread availability of coverage. For example, the Terrorism Risk
Insurance Program has a requirement for insurers to offer terrorism
insurance as part of certain commercial property insurance policies. 65
Four federal pandemic insurance program proposals with risk sharing,
including two proposed by insurers, included a similar requirement. 66
More specifically, a policyholder association representative and an
insurance expert agreed that such a requirement could be needed to
ensure some insurers offered coverage. It also could help prevent
insurers from withdrawing from the market if they experienced losses.
However, two large reinsurers and representatives from three insurance
associations we spoke with opposed any mandatory aspect to insurer
participation in a federal insurance program. One insurance expert stated
that mandatory requirements might not be effective, because insurers
could set prices high enough to discourage demand (although such an
approach would be tempered by state insurance regulators’ rate approval
processes, according to a representative from a broker association). 67
Lastly, insurers, reinsurers and an actuary told us it was important for
insurers to choose the level of risk they could bear responsibly.

An Approach Without Risk
Sharing Is Not Likely to
Have Insurer Support

None of the insurers, reinsurers, or related associations with which we
spoke supported a federal insurance approach without risk sharing. 68
Although some insurance associations originally proposed such an
approach in May 2020, representatives from two of the associations that
authored the proposal stated their preference for approaches other than
insurance when we spoke with them in 2022 and 2023. As discussed in
more detail in the next section, federal noninsurance approaches include
forms of direct assistance, loans, or guarantees. Another insurer also
65The Terrorism Risk Insurance Program requires private insurers to offer terrorism

coverage in certain commercial property/casualty insurance lines, including workers’
compensation insurance policies. Insurers must make terrorism coverage available that
does not differ materially from the terms, amounts, and other coverage limitations
applicable to losses arising from events other than acts of terrorism.

66One of the insurer proposals includes mandatory insurer participation, but insurers can

choose whether to hold 0, 5, or 10 percent of the risk and cede the remainder to the
federal government.
67State regulators must balance ensuring premium rates are fair to consumers with
ensuring the ongoing solvency of insurers.

68In interviews or during our expert panels, we spoke with representatives of three
insurance companies, two reinsurance companies, four insurance associations, and one
reinsurance association about their opinions regarding federal insurance and
noninsurance approaches for responding to pandemic events.

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preferred noninsurance approaches. On the other hand, two insurers and
two reinsurers showed interest in participating in a federal risk-sharing
insurance approach, and two insurance associations and one reinsurance
association also supported this approach.
As described above, a federal insurance program with no risk sharing
likely would face many of the same challenges as one with risk sharing,
including challenges with affordability, take up, and efficiency. In addition,
an insurance approach in which insurers would play an administrative role
likely would not help limit federal fiscal exposure or promote insurer
pandemic-related capacity or expertise. Without the possibility of such
potential benefits, it was unclear if a federal insurance approach with no
risk sharing would be preferable to noninsurance approaches.

Some Stakeholders
Suggested Alternatives to
a Full-Scale Federal
Insurance Approach

Some stakeholders have suggested, and one country implemented, a
more modest government insurance role instead of a full-scale insurance
program intended to respond to large, concurrent business losses. For
example, a smaller federal insurance program could play a “stopgap” role,
assisting participating businesses for a short time immediately after a
pandemic occurred. 69 Alternatively, a federal insurance program could
cover risks from a smaller segment of businesses or a specific line of
insurance coverage. For example, in September 2021, the government of
the United Kingdom launched the “Live Events Reinsurance Scheme,” an
£800 million (about $976 million) risk-sharing program for event
cancellation insurance. The government partnered with insurers to make
coverage available against the cancellation of events due to the COVID19 pandemic.
A more modest insurance program might make the risk more marketbearable, lowering the barriers to insurer participation. If potential insurer
losses were small, and therefore required less insurer capital to cover,
insurers might be more willing to assume risk. If, in time, insurers were
able to earn profits, this could provide more incentives to participate, and
insurers could continue to develop capacity to cover at least some portion
of this risk. Some challenges might remain. For example, losses likely still
would be concurrent, premiums might not be affordable, and the risks still
would be difficult to predict. However, low take-up rates might be
acceptable if the insurance program were one part of a broader federal
response strategy.

69Committee on Capital Markets Regulation, Pandemic Business Interruption Insurance.

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Noninsurance
Approaches Could
Ensure Widespread
Assistance but Could
Involve High Costs
and Other Trade-offs

In light of the challenges that could undermine the benefits of a federal
insurance approach, as discussed above, we analyzed potential
noninsurance approaches to providing businesses with assistance in
future pandemic events. We used the same policy goals identified earlier
to analyze the views of industry participants, experts, and academics
about the benefits and challenges of such potential approaches. Recent
experience with and lessons learned from COVID-19 federal assistance
programs—which generally are examples of noninsurance approaches—
provide important insights that inform our analysis of potential future
federal responses to pandemic business losses.

Federal Noninsurance
Approaches Can Reach
Many Businesses Quickly,
but Trade-Offs Include
High Costs and Fraud
Risk
COVID-19 Emergency
Assistance Reached Millions of
Businesses but Was Costly

Based on the experience of COVID-19 emergency assistance programs,
noninsurance approaches could achieve the goal of providing widespread
and affordable assistance to businesses in a pandemic. This stands in
contrast to insurance approaches that likely would face insurer
participation or take-up challenges and likely be expensive for businesses
if they charged actuarially determined premiums.
Generally, major emergency programs assisting businesses covered
operating expenses or provided credit. In addition, some assistance was
targeted at traditionally underserved businesses—in particular,
businesses owned by the self-employed, minorities, women, and
veterans.
•

Empirical research on the economic effects of PPP found consistent
evidence that it increased small businesses’ employment, especially
for businesses with fewer employees, and improved their financial
condition. 70 The research also suggested that PPP strengthened local
labor markets, although we found that program funds initially did not
flow proportionally to some businesses in underserved locations. In

70See GAO, COVID-19: Current and Future Federal Preparedness Requires Fixes to
Improve Health Data and Address Improper Payments, GAO-22-105397 (Washington,
D.C.: Apr. 27, 2022). We reviewed studies that examined the short-run effects of PPP on
economic activity, including labor markets and small businesses’ financial conditions.

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response to these concerns, Congress and SBA made a series of
changes that increased lending to these areas. 71 By the time PPP
closed in June 2021, lending in traditionally underserved counties was
proportional to their representation in the overall small business
community.
•

COVID-EIDL helped keep businesses open by funding operating
expenses, according to some program applicants and stakeholders. 72
They noted it provided loans with attractive rates at a time when credit
with similar terms was not available elsewhere.

However, noninsurance programs such as PPP generally are not
designed to limit federal fiscal exposure as an insurance program might. 73
As discussed previously, COVID-19 relief laws provided $1.2 trillion to
assist small businesses. 74 In these programs, the federal government
assumed most of the cost of the assistance. For instance, SBA reported
in June 2023 that PPP had delivered $792 billion in forgivable loans to
date. The other three large SBA programs—COVID-EIDL, the Restaurant
Revitalization Fund, and the Shuttered Venue Operators Grant program—
distributed more than $70 billion in loan advances (grants), grants, or
awards. 75

COVID-19 Emergency
Assistance Was Rapidly
Available but Prone to Fraud

In relation to the policy goal of promoting efficiency, PPP and COVIDEIDL showed that federal noninsurance approaches could distribute
assistance to millions of businesses relatively quickly. We reported that
the CARES Act funding for PPP was exhausted within 2 weeks of its
71The changes included increasing the number of lenders to include nonbanks, adding
guidance for self-employed individuals to help them participate in the program, and
targeting funding to minority-owned businesses. See GAO-21-601.
72See GAO, Economic Injury Disaster Loan Program: Additional Actions Needed to

Improve Communication with Applicants and Address Fraud Risks, GAO-21-589
(Washington, D.C.: July 30, 2021).

73Federal insurance programs also would be costly because, as mentioned earlier, the
government likely would assume most of the risk. However, private insurers could assume
some of the risk and not all affected businesses likely would buy coverage. Depending on
the administrative costs of an insurance program, overall costs could be less than a direct
federal assistance program.
74Small Business Administration, Protecting the Integrity of the Pandemic Relief

Programs: SBA’s Actions to Prevent, Detect and Tackle Fraud.

75The PPP program involved potentially forgivable loans, so ultimately the federal

government incurred the costs of forgiven loans. As of July 1, 2023, most loans had been
forgiven. According to SBA, 10.6 million of 11.5 million PPP loans (92 percent) totaling
$758.3 billion had been forgiven. COVID-EIDL also provided $378 billion in low-interest
loans, according to SBA. Those loans were not forgivable.

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launch in early April 2020, as lenders and SBA moved quickly to make
and process the loans. Subsequently, Congress appropriated an
additional $321 billion for the program. As of mid-June 2020—about 3
months after the World Health Organization characterized COVID-19 as a
pandemic—lenders had made about 4.6 million loans totaling about $512
billion or approximately 76 percent of the available funds. 76 For COVIDEIDL, SBA approved about 5.8 million loan advances for about $20 billion
from March 29, 2020, through July 15, 2020. For comparison, from SBA’s
inception in 1953 until March 2020, SBA had approved a total of about
2.2 million disaster loans for $67 billion, according to one SBA official.
But the programs may have been inefficient in other ways. We found a
number of inefficiencies related to the initial launch of the PPP program,
including lack of clarity on the relevance of a business’s need for a PPP
loan, confusion over eligibility for PPP loans, and systems operations
backlogs. 77 In July 2021, we also reported that COVID-EIDL applicants
faced a number of challenges, including lack of important program
information and uncertainty about application status. 78
Federal emergency assistance programs also can face challenges in
promoting the goal of accountability. These emergency events and the
corresponding creation of new federal programs or rapid expansion of
existing programs—often with an emphasis on getting money out
quickly—can strain agencies’ management capabilities and willingness to
proactively implement fundamental internal controls and fraud risk
management practices. Such shortcomings can result in significant
improper payments—payments that should not have been made or were
made in the incorrect amount as a result of mismanagement, errors,
abuse, or fraud.
SBA’s initial limited internal controls and lack of finalized oversight plans
created significant risk of billions of dollars in improper payments.
Specifically, for fiscal year 2022, SBA reported $29 billion in estimated

76GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,

GAO-20-625 (Washington, D.C.: June 25, 2020).

77For more details, see GAO-22-105397.
78For more details, see GAO-21-589.

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improper payments for PPP and $6.9 billion for COVID-EIDL. 79 In a
recent report, we estimated that the total amount of fraud across all
unemployment insurance programs (including the new emergency
programs) during the COVID-19 pandemic likely ranged from $100 billion
to $135 billion—or about 11–15 percent of the total unemployment
insurance benefits paid out during the pandemic. 80

Experiences with COVID19 Emergency Programs
Provide Insights That
Could Improve
Noninsurance Approaches

Experiences of COVID-19 emergency assistance programs in the United
States and other nations provide important insights on how the federal
government could improve its response to future pandemics. We and
others have identified examples, actions, or concepts that illustrate how
noninsurance programs could be structured to (1) place some of the
financial burden of the program on private entities and away from the
taxpayer, furthering the goal of reducing federal fiscal exposure or costs;
and (2) implement preventive measures and plan before the next
pandemic occurs, furthering our goal of promoting efficiency,
transparency, and accountability.

Sharing Risk or Program Costs
with Private Entities

Selected experiences with certain assistance programs in the United
States and abroad show that costs or risks in noninsurance emergency
assistance programs do not necessarily have to be fully borne by the
federal government and the taxpayer. Although we do not fully analyze
the benefits and challenges of the programs mentioned below, the
following examples illustrate how governments could share some of the
program costs or risks with private entities.
Sharing payroll costs with businesses. The United States and other
countries implemented job-retention programs in response to the COVID19 pandemic that shared program costs with participating businesses. For
example, Treasury’s Payroll Support Program provided more than $60
billion to the aviation industry to be used exclusively for the continuation
79See GAO, A Framework for Managing Improper Payments in Emergency Assistance
Programs, GAO-23-105876 (Washington, D.C.: July 13, 2023). Fraudulent activity
involves an individual or entity obtaining something of value through willful
misrepresentation. While all payments resulting from fraudulent activity are considered
improper, not all improper payments are the result of fraud. For example, improper
payments can be unintended and result from lack of agency oversight, mismanagement,
errors, and abuse.
80GAO, Unemployment Insurance: Estimated Amount of Fraud during Pandemic Likely

Between $100 Billion and $135 Billion, GAO-23-106696 (Washington, D.C.: Sept. 12,
2023). The CARES Act created three federally funded temporary unemployment
insurance programs that expanded benefit eligibility, enhanced benefits, and extended
benefit duration.

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of payment of wages, salaries, and benefits to employees. 81 Beneficiaries
of this program had to refrain from conducting involuntary furloughs or
terminations for specified amounts of time, among other requirements.
Treasury required certain recipients to provide notes, warrants, or both as
appropriate compensation for the provision of financial assistance. 82
Other countries also used job-retention programs. For example, during
the financial crisis of 2007–2009 and during the COVID-19 pandemic,
Germany enhanced or expanded its short-time work program, Kurzarbeit,
to stabilize labor markets. Kurzarbeit provided a government subsidy
(provided through employers) to employees working reduced hours.
Under the program, participating employers agreed to reduce employees’
workhours instead of laying them off. Employers paid workers for hours
worked, and the German government subsidized part of the cost of hours
not worked. During the pandemic, the government initially subsidized 60
percent (or 67 percent for employees with children) and ultimately raised
the subsidy to 80 percent (87 percent for employees with children)
starting from the seventh month of participation in the program. 83 The
Organisation for Economic Co-operation and Development reported that
by May 2020, about 50 million jobs across advanced economies were
being supported by some form of job-retention program. 84
Sharing risk with affected businesses. In July 2020, the United
Kingdom announced a program to assist domestic film and TV
81In March 2020, Congress passed the CARES Act, which established the Payroll Support
Program, which provided $32 billion for passenger air carriers, cargo air carriers, and
aviation contractors. In December 2020, the Consolidated Appropriations Act, 2021
established the Payroll Support Program Extension, which provided up to $16 billion for
passenger air carriers and contractors. In March 2021, the American Rescue Plan Act of
2021 created a third round of the program, which provided up to $15 billion in financial
assistance for passenger air carriers and aviation contractors. See Pub. L. No. 116-136, §
4112, 134 Stat. 281, 498 (2020) (codified at 15 U.S.C. § 9072); Pub. L. No. 116-260, div.
N, tit. IV, § 402, 134 Stat. 1182, 2053 (2020) (codified at 15 U.S.C. § 9092); and Pub. L.
No. 117-2, § 7301, 135 Stat. 4, 104-107.
82Notes are securities obligating repayment of a loan at predetermined terms. Under the
program, the value of the notes was determined as a percentage of the payroll support
provided over a certain threshold and had to be repaid by recipients. Warrants represent
the right to buy shares of a company’s stock at a predetermined price before a specified
date. For more details, see GAO-22-105397.
83Shekhar Aiyar and Mai Chi Dao, “The Effectiveness of Job-Retention Schemes: COVID-

19 Evidence from the German States,” International Monetary Fund Working Paper (Oct.
15, 2021).
84Organisation for Economic Co-operation and Development, “Job retention schemes
during the COVID-19 lockdown and beyond” (Paris, France: updated Oct. 12, 2020).

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GAO-24-106075 Pandemic Risk


productions struggling to operate. The government compensation
program provided eligible productions with reimbursement for costs
caused by pandemic-related delays up to a value of 20 percent of the
production budget. Compensation for abandonment of productions
covered up to 70 percent of the production budget, upon agreement with
the government that abandonment was necessary. 85
Sharing risk with the financial sector. Other countries implemented
loan guarantee programs in which the banking sector assumed some of
the risk from COVID-19 assistance loans. In April 2020, the Belgian
government created a €50 billion (about $53 billion) loan guarantee
program that provided new short-term loans to nonfinancial companies
(including the self-employed) to cover liquidity needs and help ensure the
continuation of their activities. The government agreed to share losses
with the lenders, so that at least 20 percent of the losses would be borne
by creditors, according to an international law firm. 86
In April 2020, Sweden also created a loan guarantee program of about
€9.1 billion (about $9.7 billion) to help businesses cover immediate
liquidity needs and continue operations. The risk taken by the government
was limited to a maximum of 70 percent, with the financial sector taking
the remainder of the risk, according to the same source. 87

Implementing Preventive
Measures and Planning

The federal government could plan responses in advance to prepare for
potential future pandemics. Better planning could allow agencies to
manage fraud and other risks while acting quickly to provide assistance.
Generally, the major emergency assistance programs for businesses
provided during the COVID-19 pandemic were created after the pandemic
started or expanded existing programs. GAO’s extensive oversight of
85Businesses were charged a fee to participate in this program. According to the UK

Actuary’s Department, television and film productions generally were unable to operate
even after lockdown orders were lifted. There was insufficient insurance coverage
available, and productions found it virtually impossible to continue filming or to acquire
financing.

86According to the international law firm Simmons & Simmons, under the Belgian

agreement with the financial sector, the first 3 percent of losses would be borne entirely by
the financial sector. For losses of 3–5 percent, the financial sector and the government
would assume equal shares of the losses. For losses above 5 percent, the government
would assume 80 percent of the losses and the financial sector 20 percent.
87Organisation for Economic Co-operation and Development, “COVID-19 Government
Financing Support Programmes for Businesses” (Paris, France: 2020); https://webarchive.oecd.org/2020-10-04/565646-COVID-19-Government-Financing-SupportProgrammes-for-Businesses.pdf.

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these programs resulted in a number of insights that could help Congress
better prepare for potential future pandemics. Some examples include the
following:
•

We made recommendations to improve COVID-19 emergency
assistance programs. For example, we recommended that SBA
implement plans to achieve program effectiveness and address
potential fraud in PPP and COVID-EIDL. 88 Such improvements could
be incorporated into any future direct federal assistance.

•

In 2022, we highlighted potential lessons learned for PPP and COVIDEIDL that could improve future pandemic responses. These lessons
included conducting an improper payment risk assessment when
designing the program, incorporating strong internal controls from the
beginning of the program, taking early steps to address fraud risks,
and ensuring clear communication with businesses. Emergency loans
for small businesses have been on GAO’s High-Risk List since March
2021. 89

•

In addition, in July 2023, we released a framework (five principles and
corresponding practices) to provide Congress and federal agencies
with an overall approach to managing improper payments in
emergency assistance programs. 90 With emergency assistance, the
risk of improper payments may be higher because the need to provide
such assistance quickly can detract from the planning and
implementation of effective controls. The framework is also intended
as a resource for Congress to use when designing new programs or
appropriating additional funding in response to emergencies.

Having emergency assistance programs in place before an event occurs
could help businesses manage their risk and reduce uncertainty related to
88We also recommended that both programs conduct and document a fraud risk
assessment. Additionally, we recommended that PPP expeditiously estimate improper
payments and report estimates and error rates, and that COVID-EIDL develop and
implement portfolio-level data analytics across program loans and advances made in
response to COVID-19 to help detect potentially ineligible and fraudulent applications.
These recommendations were addressed. We also recommended that both programs
develop a strategy that outlines specific actions to address fraud risks. These
recommendations were partially addressed as of October 31, 2023. For a discussion of
these recommendations, see GAO-22-105397.
89See GAO-22-105397 for more details on COVID-EIDL and PPP lessons learned. Also

see GAO, High- Risk Series: Efforts Made to Achieve Progress Need to Be Maintained
and Expanded to Fully Address All Areas, GAO-23-106203 (Washington D.C.: Apr. 20,
2023).

90See GAO-23-105876.

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GAO-24-106075 Pandemic Risk


potential pandemic losses. More specifically, some stakeholders
underscored the importance of a more planned response to the next
pandemic. They said that Congress could help reduce some uncertainty
by exploring ways to set up such programs in advance. One stakeholder
stated this could include details on the kind and amount of assistance,
qualification requirements, and circumstances under which assistance
would become available. For example, Munich Re’s Epidemic Risk
Markets Platform proposes that federal governments offer contingent
loans to businesses. 91 The loans would be set up in advance and
triggered if a pandemic occurred. Although a more in-depth analysis of
this concept would be needed to fully understand its potential benefits
and challenges, it provides a useful example of a federal noninsurance
approach that uses loan contracts that aim to set clear terms and
conditions for businesses before the next pandemic occurs.

It Is Unclear If Insurance
Approaches Would Offer a
Viable Alternative to
Noninsurance Approaches

The extent to which an approach involving federal insurance might be
preferable to a revised noninsurance approach is unclear. An approach in
which private insurers share some of the risk could reduce the federal
government’s exposure, but such insurers currently lack the desire or
ability to share much of this risk. Any such insurance is likely to be
expensive and could require federal affordability assistance. Should some
level of risk-sharing be achieved, it might prove difficult to maintain and
improve, because insurers might join the market if they found it profitable
but exit the market if they experienced losses.
Although business participation is critical to the success of any federal
insurance program, achieving high take-up rates might prove challenging.
Most businesses (60–70 precent) currently do not purchase business
interruption coverage. Thus, using federal insurance to provide pandemic
assistance would require many businesses to purchase a type of
coverage they do not already have. Businesses also might decide to
forgo coverage with the expectation of receiving some form of direct
assistance (such as that made available in response to the COVID-19
pandemic).
Experiences with pandemic-related federal assistance programs provide
insights into what might be achievable in the event of another pandemic
as well as the difficulties that might be encountered. Lessons learned
91Munich Re is a large, global reinsurer that also provides primary insurance and
insurance-related risk solutions. Its Epidemic Risk Markets Platform proposes roles for
private insurance markets, banking sector, capital markets, and the public sector in
building capacity for pandemic business risk.

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GAO-24-106075 Pandemic Risk


from these programs can shape the country’s response in potential future
events, ideally contributing to a revised response with robust safeguards
against fraud, lower costs, and some degree of risk sharing.

Agency Comments

We provided a draft of this report to the Department of the Treasury’s
Federal Insurance Office for review and comment. The Federal Insurance
Office provided technical comments, which we incorporated, as
appropriate.
We are sending copies of this report to the appropriate congressional
committees and the Secretary of the Treasury. In addition, the report is
available at no charge on the GAO website at https://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or CackleyA@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix II.

Alicia Puente Cackley
Director, Financial Markets and Community Investment

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List of Addressees
The Honorable Tim Scott
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
The Honorable Robert Menendez
Chairman
The Honorable M. Michael Rounds
Ranking Member
Subcommittee on Securities, Insurance, and Investment
Committee on Banking, Housing, and Urban Affairs
United States Senate
The Honorable Warren Davidson
Chairman
Subcommittee on Housing and Insurance
Committee on Financial Services
House of Representatives
The Honorable Roger Williams
Chair
The Honorable Nydia M. Velázquez
Ranking Member
Committee on Small Business
House of Representatives
The Honorable French Hill
House of Representatives
The Honorable Blaine Luetkemeyer
House of Representatives

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GAO-24-106075 Pandemic Risk


Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and
Methodology

This report examines the (1) role private-sector insurance played in
helping businesses address COVID-19 pandemic-related losses, (2)
benefits and challenges of federal insurance approaches for addressing
pandemic business losses, and (3) benefits and challenges of
noninsurance approaches for addressing pandemic business losses.
For the first objective, we reviewed industry reports on and estimates of
insured business losses by relevant insurance line and available
information on the number of claims. 1 To describe business interruption
policies in place and claims paid, we analyzed data in reports from the
National Association of Insurance Commissioners (NAIC) on business
interruption coverage in force as of December 31, 2019, and monthly
claims from June to November 2020. 2 We assessed the reliability of these
data by interviewing NAIC officials and reviewing documentation related
to the collection of the data. We found the data to be reliable for
understanding the extent to which businesses filed and were paid
business interruption insurance claims to help address pandemic-related
losses.
To characterize the percentage of commercial policies with business
interruption coverage in the United States, we used an estimated range
used by NAIC. We corroborated this estimate with an estimate by the
Insurance Services Office based on insurer member data as of 2018.
According to staff, members represented approximately 50 percent of the
market. 3 We further corroborated NAIC’s estimate with our estimate of the
1National Association of Insurance Commissioners, “COVID-19 Property & Casualty

Insurance Business Interruption Data Call, Part 1: Premiums and Policy Information”
(Washington, D.C.: June 2020); and “COVID-19 Property & Casualty Insurance Business
Interruption Data Call, Part 2: Claim and Loss Information” (Washington, D.C.: November
2020). Also see Howden Broking Group Limited, Times Are A-Changin’ (London, England:
Jan. 4, 2022) and Why Did Events Insurance Become So Expensive (London, England:
Feb. 10. 2022); and The National Council on Compensation Insurance, et. al., COVID-19
and Workers Compensation: Phase II of the Multibureau Collaboration.

2In April 2020, NAIC issued a data call to the insurance industry in 48 states, the Virgin

Islands, and the District of Columbia to understand the relative size of the U.S. business
interruption insurance market, the extent of exclusions related to the COVID-19 pandemic,
and potential pandemic-related insured losses due to business interruption coverage. New
Mexico and New York did not participate in the data call.
3The Insurance Services Office is a property/casualty insurance industry association that

develops standardized policy language. It is both a licensed advisory organization and
appointed statistical agent for multiple states. According to staff, the office collects and
maintains billions of insurance transactions for the purposes of developing and filing
prospective loss costs with state regulators and providing required statistical reports to the
regulators on behalf of their member insurance companies.

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Appendix I: Objectives, Scope, and
Methodology

percentage of property/casualty premium in 2019 associated with policies
with business interruption coverage, which we based on nationwide S&P
Global Market intelligence data and NAIC data, respectively.
To determine characteristics of contested insurance claims, we analyzed
data from the University of Pennsylvania’s COVID Coverage Litigation
Tracker, which tracked U.S. federal and state court cases on contested
insurance claims related to the COVID-19 pandemic. 4 We received data
as of October 23, 2023, for elements such as court filing location, industry
sector, and most recent ruling. We also used information and data
available on the project’s website to identify appellate court rulings by
state. We assessed the reliability of these data by interviewing an
academic and staff associated with the project, reviewing database
documentation, and testing the reasonableness of combinations of fields.
We found the data to be reliable for analyzing the status and
characteristics of contested business interruption pandemic-related
claims.
We also interviewed insurers, reinsurers, insurance brokers, businesses,
and related associations, as well as the Insurance Services Office, NAIC,
and Treasury’s Federal Insurance Office to understand how, if at all,
insurance helped businesses recover pandemic-related losses and the
availability and affordability of relevant insurance lines after the onset of
the COVID-19 pandemic.
Lastly, we reviewed analyses by actuaries, insurance experts, and others
on established insurability criteria and how characteristics of pandemic

4The tracker follows insurance litigation in federal and state courts arising out of the

COVID-19 pandemic. As of October 23, 2023, it could be accessed at
https://cclt.law.upenn.edu/. This dataset contains all federal cases but may not capture all
state cases because of the fragmented and incomplete nature of state court electronic
filing and data sharing.

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Appendix I: Objectives, Scope, and
Methodology

business risk compare against the criteria. 5 As part of the insurability
analysis, we compared COVID-19 assistance to businesses through the
Paycheck Protection Program with the total capital held by U.S.
property/casualty insurers at the end of 2022 and with estimates of the
highest-loss year for two federal insurance programs. We used S&P
Global Market Intelligence data for the capital held and data from the
National Flood Insurance Program and the Federal Crop Insurance
Program to determine the year with the largest losses. We also
interviewed actuaries, insurance experts, insurers, reinsurers, insurance
brokers, and related associations about the insurability of pandemic
business risk.
For the second and third objectives, we categorized federal approaches
to assisting businesses with future pandemic losses into those that
involved the use of insurance and those that did not:
•

Federal insurance approaches. We split the insurance approaches
into two subcategories: (1) one in which insurers share some of the
risk with the federal government and (2) one in which the federal
government assumes all the risk. To identify these insurance
approaches, we reviewed industry and other proposals for federal

5See Aditya Khanna, Brian A. Fannin, and Tim Wei, “On Insurability and Transfer of

Pandemic Business Interruption Risk,” Casualty Actuarial Society Research Brief (2021).
The brief summarizes criteria for insurability established and explained in actuarial
literature. See the background section of our report for more information. Also see
Organisation for Economic Co-operation and Development, “Responding to the COVID-19
and Pandemic Protection Gap in Insurance” (Paris, France: updated Mar. 16, 2021); KaiUwe Schanz, “An Investigation into the Insurability of Pandemic Risk,” (Zurich,
Switzerland: The Geneva Association, October 2020); Robert Hartwig and Robert Gordon,
“Uninsurability of Mass Market Business Continuity Risks from Viral Pandemics,”
American Property Casualty Insurance Association (2020); Gunther Kraut, Paulina La
Bonte, and Andreas Richter, “Pandemic risk management and insurance,” working paper
(Munich, Germany: May 24, 2023); Lisa Slotznick, American Academy of Actuaries, letter
to Hon. Maxine Waters and Hon. Patrick McHenry, Committee on Financial Services, U.S.
House of Representatives (May 11, 2020); and Denis Kessler, “Why Pandemic Risk Is
Uninsurable” (Jan. 15, 2021)—accessed on May 2, 2023 at
https://www.scor.com/en/expert-views/why-pandemic-risk-uninsurable.

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Appendix I: Objectives, Scope, and
Methodology

pandemic insurance programs and various pandemic studies. 6 We
also reviewed GAO and other reports on existing federal insurance
programs (primarily the National Flood Insurance Program, Terrorism
Risk Insurance Program, and Federal Crop Insurance Program). 7
•

Noninsurance approaches. Because of the wide range of possible
programs that do not use insurance to assist businesses during a
pandemic, we selected programs for our analysis that we believed
best illustrated the benefits or challenges of noninsurance approaches
relative to insurance approaches. We reviewed related GAO and

6Proposals include those from the American Property Casualty Insurance Association,

Independent Insurance Agents & Brokers of America, Inc., and National Association of
Mutual Insurance Companies, “Business Continuity Protection Program” (updated
September 2020); Chubb, “Pandemic Business Interruption Program” (July 8, 2020);
Zurich, “Zurich’s Draft Concept for Facilitating Pandemic Protection” (Dec. 7, 2020);
Pandemic Risk Insurance Act of 2020, H.R. 7011 (116th Cong.); and Business Continuity
Coalition, “Pandemic Risk Insurance Act Business Continuity Coalition Proposal: Sectionby-Section Description” (March 2021). Other pandemic studies include Lloyd Dixon and
Jamie Morikawa, “Improving the Availability and Affordability of Pandemic Risk Insurance:
Projected Performance of Proposed Programs” (Santa Monica, Calif.: RAND Corporation,
2021); Robert Klein and Harold Weston, “Feasibility Questions About GovernmentSponsored Insurance for Business Interruption Losses from Pandemics,” Journal of
Insurance Regulation, 39, no. 7 (2020); Robert Hartwig, Greg Niehaus, and Joseph Qiu,
“Insurance for economic losses caused by pandemics,” The Geneva Risk and Insurance
Review, 45 (2020): 134–170; Kai-Uwe Schanz, “An Investigation into the Insurability of
Pandemic Risk” (Zurich, Switzerland: The Geneva Association, October 2020); Leigh
Wolfrom, “Could insurance provide an alternative to fiscal support in crisis response?,”
OECD Working Papers on Fiscal Federalism, 40 (September 2022); Committee on Capital
Markets Regulation, “Pandemic Business Interruption Insurance” (Cambridge, Mass.: July
2021); and Lloyd’s, “Supporting global recovery and resilience for customers and
economies” (2020).

7For example, see GAO, Flood Insurance: FEMA’s New Rate-Setting Methodology

Improves Actuarial Soundness but Highlights Need for Broader Program Reform,
GAO-23-105977 (Washington, D.C.: July 31, 2023); Farm Bill: Reducing Crop Insurance
Costs Could Fund Other Priorities, GAO-23-106228 (Washington, D.C.: Feb. 16, 2023);
Terrorism Risk Insurance: Program Changes Have Reduced Federal Fiscal Exposure,
GAO-20-348 (Washington, D.C.: Apr. 20, 2020); Terrorism Risk Insurance: Market Is
Stable but Treasury Could Strengthen Communications about Its Processes, GAO-20-364
(Washington D.C.: Apr. 20, 2020); Crop Insurance: Opportunities Exist to Improve
Program Delivery and Reduce Costs, GAO-17-501 (Washington, D.C.: July 26, 2017); and
Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance
Resilience, GAO-17-425 (Washington, D.C.: Apr. 27, 2017). Also see Department of the
Treasury, Federal Insurance Office, Report on the Effectiveness of the Terrorism Risk
Insurance Program (Washington, D.C.: June 2022); and Lloyd Dixon, Robert J. Lempert,
Tom LaTourrette, and Robert T. Reville, The Federal Role in Terrorism Insurance
Evaluating Alternatives in an Uncertain World (Santa Monica, Calif.: RAND Corporation,
2007).

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Appendix I: Objectives, Scope, and
Methodology

other reports on U.S. COVID-19 assistance programs. 8 We also
reviewed information on international COVID-19 assistance
programs. 9
We also identified the following five policy goals that we used to analyze
the benefits and challenges of these approaches and that Congress also
can use to evaluate future pandemic business responses: (1) ensure
widespread, sufficient, and affordable insurance/assistance; (2) promote
efficiency, transparency, and accountability; (3) promote risk mitigation
and limit moral hazard; (4) reduce federal fiscal exposure or cost; and (5)
promote private-sector participation. We developed these goals by
analyzing many of the sources used to identify federal insurance
approaches (including the federal insurance proposals and related
academic and expert analyses and GAO reports on existing federal
insurance programs). We used interviews with stakeholders as well as
expert panels (described below) to verify the comprehensiveness and
appropriateness of our goals.
We conducted two expert panels to identify and discuss the benefits and
challenges of federal insurance and noninsurance approaches. The
panels were several hours in length and were conducted virtually. To
identify and select a diverse group of panel members, we conducted a
8For example, GAO, Paycheck Protection Program: Program Changes Increased Lending

to the Smallest Businesses and in Underserved Locations, GAO-21-601 (Washington,
D.C.: Sept. 21, 2023); Unemployment Insurance: Estimated Amount of Fraud during
Pandemic Likely Between $100 Billion and $135 Billion, GAO-23-106696 (Washington,
D.C.: Sept. 12, 2023); A Framework for Managing Improper Payments in Emergency
Assistance Programs, GAO-23-105876 (Washington, D.C.: July 13, 2023); Improper
Payments: Fiscal Year 2022 Estimates and Opportunities for Improvement,
GAO-23-106285 (Washington, D.C.: Mar. 29, 2023); COVID-19: Current and Future
Federal Preparedness Requires Fixes to Improve Health Data and Address Improper
Payments, GAO-22-105397 (Washington, D.C.: Apr. 27, 2022); Economic Injury Disaster
Loan Program: Additional Actions Needed to Improve Communication with Applicants and
Address Fraud Risks, GAO-21-589 (Washington, D.C.: July 30, 2021); and COVID-19:
Opportunities to Improve Federal Response and Recovery Efforts, GAO-20-625
(Washington, D.C.: June 25, 2020). Also see Small Business Administration, Protecting
the Integrity of the Pandemic Relief Programs: SBA’s Actions to Prevent, Detect and
Tackle Fraud (Washington, D.C.: June 27, 2023).

9For example, see “Job retention schemes during the COVID-19 lockdown and beyond,”

background document for chapter 1 in Organisation for Economic Co-operation and
Development, OECD Employment Outlook 2020: Worker Security and the COVID-19
Crisis (Paris, France: July 7, 2020); Organisation for Economic Co-operation and
Development, “COVID-19 Government Financing Support Programmes for Businesses”
(Paris, France: 2020), www.oecd.org/finance/COVID-19-Government-Financing-SupportProgrammes-for-Businesses.pdf.; and Shekhar Aiyar and Mai Chi Dao, “The Effectiveness
of Job-Retention Schemes: COVID-19 Evidence from the German States,” International
Monetary Fund Working Paper (Oct. 15, 2021).

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Appendix I: Objectives, Scope, and
Methodology

literature search for studies on pandemic response issues and reviewed
past GAO work and workpapers developed from prior interviews. The
panels consisted of representatives from the following groups:
•

one reinsurance company (Munich Re) and one reinsurance
association (Reinsurance Association of America);

•

one insurance company (Lloyd’s) and four insurance associations
(American Property Casualty Insurance Association, Captive
Insurance Company Association, National Association of Mutual
Insurance Companies, and Wholesale and Specialty Insurance
Association);

•

one insurance brokerage firm (Marsh) and one broker association
(Council of Insurance Agents and Brokers);

•

two business groups (Business Continuity Coalition and Risk and
Insurance Management Society);

•

two associations of actuaries (American Academy of Actuaries and
Casualty Actuarial Society);

•

two organizations that have studied pandemic response issues
(RAND Corporation and the Organisation for Economic Co-operation
and Development); and

•

NAIC and the Department of the Treasury’s Federal Insurance Office.

The panels, moderated by GAO staff, were recorded and transcribed to
ensure that we accurately captured the experts’ statements. We reviewed
and analyzed the transcripts as a source of evidence.
We also separately interviewed each of the panelists, as well as one
epidemiologist and representatives from two large insurance companies
(Chubb and Zurich), one risk-modeling company (Verisk), and a variety of
businesses or business associations (Exhibitions and Conferences
Alliance, Independent Film and Television Alliance, Marriott International,
National Restaurant Association, Paramount Global, and Real Estate
Roundtable).
We conducted this performance audit from May 2022 to December 2023,
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.

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Appendix II: GAO Contact and Staff
Acknowledgments
Appendix II: GAO Contact and Staff
Acknowledgments

GAO Contact

Alicia Puente Cackley, (202) 512-8678 or CackleyA@gao.gov

Staff
Acknowledgments

In addition to the contact named above, Patrick Ward (Assistant Director),
Silvia Arbelaez-Ellis (Analyst in Charge), Lijia Guo, Karen JarzynkaHernandez, John Karikari, Scott McNulty, Marc Molino, Tim Planert,
Barbara Roesmann, Stephen Ruszczyk, Jessica Sandler, Hiba Sassi,
Andrew Stavisky, and Frank Todisco made key contributions to this
report.

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GAO-24-106075 Pandemic Risk


GAO’s Mission

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