Now that the Paycheck Protection Program (PPP) has taken form and policymakers begin exploring whether the Terrorism Risk Insurance Act (TRIA) could serve as a model going forward, it is useful to compare the PPP with a hypothetical Pandemic Risk Protection Act (PRIA). The financing of a future pandemic risk program is the easy part to think through. The only ones with enough money to fund the economy during another COVID-19 scale lockdown are those who can print it. Any private funding within a pandemic risk program would be on the margins at most. The more interesting questions for such a program are: What benefits should be available to impacted businesses? Which businesses should be entitled to claim those benefits? Who has the infrastructural capabilities to deliver the necessary scale of benefits? Neither the PPP model nor the PRIA model has good answers to all three questions. However, by comparing these approaches we can begin to see the outlines of what a viable program would look like. The attached is an effort to advance that conversation.

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CBI-PAN-20-07
Paycheck Protection Program (PPP)
vs.
Pandemic Risk Insurance Act (PRIA)
Pandemic Response Options
CBI

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PPP vs. PRIA
Executive Summary
Two models appear to have emerged as policymakers consider legislative programs to prepare for the risk of future pandemics on the scale
of COVID-19. Those models are the recently enacted Paycheck Protection Program (PPP) and the Terrorism Risk Insurance Act of 2002
(TRIA). Each approach offers certain advantages and drawbacks which are compared in this paper.
Observations
Responds to the needs of small
and mid-sized businesses
• PPP is custom made for the crisis at hand
• Typical insurance is unlikely to cover business loss
from lockdown orders even without a virus exclusion
Holds businesses of all sizes and
industries to the same rules
• PPP is only available to small businesses although
there are exceptions for certain industries
• PRIA permits large corporates to design their own
government funded relief programs via captives
Supports businesses to make
sound long-term decisions
• PPP cannot be relied upon until it has been enacted
• PRIA allows companies to understand their coverages
in the event of a pandemic well in advance
Aligns costs of the program
with a business’s risk of loss
• The cost of PPP is shifted to taxpayers at large
• PRIA involves a premium charge but at the levels now
charged under TRIA would take more than 125 years to
accumulate the amount of the first round of PPP funding
Leverages adequate private
capacity to timely and efficiently
deliver benefits to businesses
• PPP relies on banks and other lenders to issue and
manage $350 billion in loans
• PRIA relies on insurance catastrophe claims capabilities
which have never handled the distribution of more than
$50 billion in any crises (Hurricane Katrina) – 7 times
smaller than the first round of the PPP funding
Encourages high levels of
business participation
Paycheck Protection
Program (PPP)
Pandemic Risk
Insurance Act (PRIA)
• Experience with TRIA suggests a significant number of
businesses will decline optional catastrophe coverages
Program
Objectives

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Overview of the Paycheck Protection Program (PPP)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (HR 748) includes the Paycheck Protection Program (Sec. 1102).
LoanGuaranty the loan
will be repaid
Participating
Bank
Qualifying
Business
Payroll
Utilities
Rent, Interest on a
Mortgage or other
Debt Obligation
Authority to issue $349
billion of loan guarantees
1% per annum interest with a 2-
year maturity and no payment
due for the first six months.
Permitted Uses
of Loan Proceeds
Guarantees are available for loans
made on or before June 30, 2020 on
a “first come, first served” basis.
The full loan (including accrued interest) will be forgiven if the
loan proceeds are applied toward permitted uses during the
first 8 weeks of the loan including at least 75% to payroll costs.
In addition to interest earned on the loan, the lender receives a
processing fee from the SBA based on the amount of the loan.
5% <$350,000
3% <$2,000,000
1% >$2,000,000
A participating bank may hold a loan or sell it on the
secondary market at a premium or discount to par value.
Payroll costs for employees* with a US place of residence includes:
• Salary, wages and commissions
• Cash tips (as recorded or estimated)
• Payments for vacation, parental, family, medical or sick leave
• Cost of employee benefits such as insurance and retirement
• State and local payroll taxes
*For sole proprietors or independent contractors, payroll consists of wages,
commissions, income or net earnings (subject to the $100,000 annualized cap
Cash compensation is
subject to a $100,000
annualized cap

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Paycheck Protection Program (PPP) Qualification Criteria
Qualifying businesses and sole proprietors can apply for loans beginning April 3. Independent contractors and self-employed individuals
can begin applying on April 10. There are four categories of eligible entities or concerns.
Non-employers if one of the following:
• Independent contractor
• Self-employed individual
• Sole proprietor
Employers with 500 or fewer full-time or part-time
employees (having a principal place of residency in
the US) that is one of the following:
• Business concern
• 501(c)(3) nonprofits
• 501(c)(19) veterans organizations
• Tribal business concerns
The SBA designates higher employee thresholds for
certain industries which can reach 1500 employees.
Regardless of the number of employees, a businesses that as
of March 27, 2002 had both:
• A tangible net worth of no greater than $15 million;
and
• An average net income after federal income taxes
(excluding any carry-over losses) for the two full fiscal
years before the date of the application of no more
than $5 million.
1 2
3
Hotel chains (and other in the accommodation businesses)
employing no more than 500 employees per physical
location at the time of loan dispersal
4
In applying these criteria, all entities and concerns in common control are added together.* A person controls another entity if the person:
• Holds more than 50% ownership of voting equity in the entity
• Has a minority stake but can prevent a quorum or otherwise block action by the board or shareholders
• Holds stock options, convertible securities, and agreements to merge which would qualify under either of the above criteria
• Holds a management agreement over the entity
• Holds identity of interests with close relatives with control over the entity
• Is the CEO or President (or controls the board or management) of the entity
*These affiliation rules do not apply to hotel and other accommodation industry groups or franchised businesses.

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Pandemic Risk Insurance Act (PRIA) – Make Available Requirement
Offer of a Policy without a Virus Exclusion
The hypothetical Pandemic Risk Insurance Act requires an insurance company to make available a policy covering losses from an outbreak
of infectious disease on the same terms, limits and conditions as the policy covers the same losses from any other event
A TRIA-style make available requirement would not require
insurers to cover business income losses from a pandemic. Rather,
the policy cannot exclude the loss because it relates to a pandemic.
If business income loss is not covered for some other reason (such
as there was no property damage or no order prohibiting access),
PRIA would not require the business income loss to be covered.
The insurer satisfies its obligation
by first offering a policy without a
virus exclusion.
If rejected, the insurer is then
free to offer a policy with a
virus exclusion.
Treasury reports 2017 take-up rates under TRIA of 78% by policy
count (and 63% by overall policy premium).
• 29% of policies charged $0 for terrorism coverage
• For policies with a terrorism charge the average rate
was 2.5% of total policy premium
Take-Up Rates
Order from a civil authority
Caused by a covered cause of loss
For a zone of prohibited access
Because of property damage
With
PRIA
Without
PRIA
Simplification of conditions
triggering Civil Authority Coverage
No Charge 2.5% Avg. ChargeOpt-Out
Half of eligible policyholders
pay nothing under TRIA
The other half pay the
equivalent of 0.75% of the
PPP’s initial funding each year

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Pandemic Risk Insurance Act (PRIA) – The Backstop
The Backstop Competitive Dislocation
The hypothetical Pandemic Risk Insurance Act provides a federal backstop which serves as a kind of reinsurance by reimbursing insurers
for a share of losses above an individual insurer retention.
Liability cap for total of insurer and
federal share ($100 billion in TRIA)
Individual insurer group deductible based on
prior year direct earned commercial property and
casualty insurance premiums (20% in TRIA)
Insurer Deductible
InsurerCo-Share
Federal Share
Insurer continues to
share in losses after the
deductible has been
met (20% in TRIA)
US Treasury administers a reinsurance program through which
participating insurers can request reimbursement of a
percentage of covered losses exceeding a deductible amount.
PRIA’s backstop deductible structure would create a heavily skewed
competitive playing field.
AXA
Chubb
Travelers
StateFarm
Liberty
Allstate
Progressive
$2.5 billion
$0.5 billion
But State Farm is 3
times the size of Chubb
by overall premium
Chubb’s backstop deductible would
be 4 times larger than State Farm’s
The PRIA would replace not only the PPP for small businesses but also
the Coronavirus Economic Stabilization Act bailout of large corporations.
Large corporates would be allowed to use their personal insurance
companies to grant generous pandemic relief benefits at low cost.
Write Your Own Bailout for Large Corporations
$1 million
Backstop Deductibles
$400,000
$9 million
$235,000

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Pandemic Risk Insurance Act (PRIA) – Overwhelming Scale
PPP Initial Funding
10 largest US property insurance losses in 2018 dollars
(Insurance Information Institute)
TRIA Claims Capacity
Total National Flood Insurance Program losses paid
over the 10-year period ending Dec. 31, 2018
The insurance claims administration capabilities necessary to investigate, document and payout an amount of insurance claims equivalent
to the Paycheck Protection Program’s initial round of funding would be the same as if the top 10 US catastrophes (hurricanes, earthquakes
and terrorism) occurred in the same month together with 10 years of federal Crop Insurance and Flood Insurance claims.
Total claims-paying capability of the Terrorism Risk
Insurance Program including insurer shares of loss
$349 billion
TRIA
Premium
Total amount of terrorism premium collected under all lines
of business over the first 15 years of the TRIA program
Katrina
Maria
Irma
9/11
Andrew
Sandy
Harvey
Northridge
Ike
Wilma
NFIP
Federal Crop
Insurance
Program
Total Federal Crop Insurance Program claims paid
over the 10-year period ending Dec. 31, 2016

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Comparison of Conditions for Coverage
The PPP qualification criteria focuses largely on the nature and needs of the business itself. Qualification for Civil Authority Coverage
begins with the decision of the policyholder whether to purchase business income coverage. If it had the foresight to do so, then the
inquiry focuses on the nature of the governmental order.
Civil Authority Coverage (CA)
CP 00 30 10 12
2
3
4
Property damage by a
covered cause of loss away
from the insured location
A civil authority has taken action to
prohibit access to an area immediately
surrounding the property damage.
The insured location is within (a) the
area of prohibited access; and (b)
one mile of the damaged property.
5
The civil authority
established the
prohibited access area
either (a) to allow
unimpeded access to
the damaged property;
or (b) in response to
dangerous physical
conditions resulting
from the damage or the
continuation of the
covered cause loss that
caused the damage.
Paycheck Protection
Program (PPP)
To the extent feasible, the business will
purchase only American-made
equipment and products
2
4
5
The business was in operation
on February 15, 2020
3 The business paid employees and payroll
taxes (or paid independent contractors as
reported on a 1099-MISC)’
The business requires the loan to
continue operations in the current
economic uncertainty
1
The business has 500 or fewer employees
or meets other qualifying criteria
1 The policyholder purchased business income coverage

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Comparison of Benefits
PPP covers most of the same elements of business income loss as provided by commercial property insurance. Business income loss
coverage under Civil Authority Coverage covers about half the duration of PPP but covers lost profits, salaries of high-earners and workers
compensation insurance premiums. Of course, Civil Authority Coverage is only available if the conditions for coverage have been met.
Paycheck Protection
Program (PPP)
Twice average monthly payroll
(based on average payroll over
prior 12 months) subject to
$100,000 salary cap and
maximum total of $7.5 million
50% of average monthly payroll
subject to $2.5 million maximum
Loan proceeds must be spent on
payroll (at least 75%), rent,
utilities and interest during the 8
weeks starting from the date of
the loan for the loan to be forgiven
Business Income Loss under
Civil Authority Coverage (CA)
CP 00 30 10 12
Payroll expenses actually incurred
Continuing normal operating expenses
actually incurred
Net income (before income taxes)
that would have been earned
• Starting 72 hours after the first
order prohibiting access to the
insured premises is first; and
• Ending at the earlier of the lifting
of the order or 4 consecutive weeks
Payroll Continuation
Mortgage Interest
Rent and Utilities
Net profit or loss
Period of Covered
Business Income Loss
Differences
• PPP covers more than twice
the period as CA
• PPP is keyed to the date of
the loan, while CA is keyed
to the date of the order
PPP covers an active owner’s
salary or profits up to $16,700
total, while under there is no
cap under CA and passive
investor interests are covered
PPP covers payroll based on past
average subject to a cap on high-
earners, while CA covers actual
continued payroll without a cap on
high-earners and includes workers
compensation premium
PPP covers continuing operating
expenses based on a formula while
CA covers actual incurred expenses

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Resources
The Terrorism Risk Insurance Act:
Policies, Processes and Controls
The Center for
The Terrorism Risk Insurance Act
TRIA Resource Library Link
CBI Publications Link
Terrorism Insurance Captives CBI-TRIA-20-03
Framework for GAO Cyber Study CBI-TRIA-20-02
Red-Line of 2019 Extension CBI-TRIA-20-01
Link
The Center for
Pandemic Response
CBI Publications Link
Civil Authority Coverage and PPP CBI-PAN-20-06
Cruise Cancellation Protection CBI-PAN-20-05
Small Business Insurance Program CBI-PAN-20-04
The Center for
The EU General Data Protection Regulation
GDPR Resource Library Link