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There May Be No Role For Insurers In a Pandemic
The obstacles to creating a TRIA like program for pandemic risks may be too significant to include a role for private market insurers and reinsurers. Besides the practical issues of properly measuring and pricing the risk, pandemics may too much of a macroeconomic risk for insurers to absorb.
“The problem with pandemic is it hits every sector and every geography, while at the same time the assets you're using to back those claims are also hit,” says R.J. Lehmann, resident senior fellow at conservative think-tank R Street Institute. “It's just not possible. This is the ultimate correlated event.”
According to Business Insurance:
The bill, dubbed the Pandemic Risk Insurance Act (PRIA), was proposed by Democrat Representative Maxine Waters. The PRIA has been modeled after a similar measure, the Terrorism Risk Insurance Act (TRIA), which capped the total amount insurers have to pay for claims related to a terrorist act at $100 billion per year. For every $100 billion, they pay out 20% of their direct earned premiums as a deductible, then pay 20% of the remaining amount in excess of this deductible. The government then pays the rest.
But there are several practical challenges for insurers and reinsurers that would challenge a TRIA-like public/private market solution, says Zachary Lerner, a partner in the New York office law firm Locke Lord.
“TRIA applies to all commercial property and casualty lines of insurance (subject to certain exceptions), whereas PRIA may end up applying only to policies that specifically provide business interruption insurance,” Lerner said in response via email to Risk Market News. “Another crucial difference may develop with respect to the interaction with other state and federal legislative initiatives; PRIA may tackle a post-COVID-19 world, but various state and federal initiatives may impose retroactive obligations on insurers and nullify pandemic exclusions currently contained under in-force insurance policies.”
Lerner added that the PRIA proposal also contains a clause that would force retroactive coverage for participating insurers although the current proposal leaves this point up for continued consideration and debate.
“This retroactive component has certainly been met with greater skepticism from the insurance industry,” Lerner explained. “It is the prospective components of the bill that, in my view, are met with broader support. In addition, unlike TRIA, the current draft PRIA is a voluntary program that, if insurers participate, they would owe separate reinsurance premiums to the treasury in order to be provided the backstop.”
The economics are also a problem.
R Street’s Lehman says that although his conservative instinct would be a private market solution, the macro math does not check out.
“I don't think the private incentives work here,” he explains. “If you think about the traditional insurance model, insurer and insured incentives are aligned. The insurer doesn't want you to make a fire claim and you don't want a fire so you both have the same interests. In this circumstance, since there's nothing you can do to stop the pandemic, the only thing you can do to not make the claim is paid no matter what.”
Despite the scramble over PRIA legislation, Lehman thinks that it is unlikely to be considered anytime soon given the election year, and more importantly, the lack of industry support.
“I do not see any appetite right now for the industry to participate in any way whatsoever, ” he says. “The only, the only faction of the industry that seems interested in setting up a program for pandemics are the brokers who wouldn't be risk-bearing. They just see the opportunity to make a commission.”
Researchers, Google Rains On NOAA’s Weather Model Parade
Google may be attempting a little bit of weather model trolling as attempts to push ahead with its $45 million upgrade.
The National Aeronautics and Space Administration (NOAA) went out to bid late last month for its proposed Earth Prediction Innovation Center (EPIC), an upgrade to its aging Global Forecast System (GFS). The GFS has consistently gotten owned by competing weather model in Europe, called the European Center for Medium-Range Weather Forecasts (ECMWF).
2017’s Weather Research and Forecasting Innovation Act earmarked $45 million to upgrade the GFS and the public/private EPIC program is the answer, according to the NOAA.
Through EPIC, the United States has a unique opportunity to harness the talents of the most brilliant modelers in the world to advance operational global numerical weather prediction,” said Neil Jacobs, Ph.D., acting NOAA administrator. “Advancing our operational weather modeling capability will improve forecasts and lead to more resilient communities.
But shortly following the EPIC announcement, scientists and researchers began to question the program in a scathing article in the Washington Post.
The request “is mainly about the ‘plumbing’ of numerical weather prediction and supporting outreach, with little mention of scientific innovation,” Cliff Mass wrote in an email. Mass is a professor of atmospheric science at the University of Washington and a longtime critic of NOAA’s modeling approach.
“There is … no mention of how to bring the weather research community together, nor any requirement to demonstrate progress in providing the nation with better weather forecasts.”
Even private market, which are supposedly integral to the EPIC program, couldn’t help by one-upping the NOAA’s weather model chops. Google released a statement shortly after the RFP was released saying that is had developed an “neural weather model” call MetNe that “outperforms" NOAA’s model and that it makes a prediction over the entire U.S. “in seconds as opposed to an hour.”
MetNet outperforms the current state-of-the-art physics-based model in use by NOAA for prediction times up to 7-8 hours ahead and makes a prediction over the entire US in a matter of seconds as opposed to an hour.
We have some of the best infectious disease modelers in the world. I’m really proud of my community. But if we’re going to rely on them so heavily — and if they are going to be so important — we need to think more about how to make that a formalized capability, and not a volunteer effort.
The ratings firm took the action on 859 bonds from 358 CLOs that package leveraged loans into securities of varying degrees of risk and return, according to a statement late Friday. The step -- which affects about 19% of Moody’s-rated CLOs that purchase broadly syndicated loans -- comes as the underlying debt gets downgraded at a record pace.
“That the IHME model keeps changing is evidence of its lack of reliability as a predictive tool,” said epidemiologist Ruth Etzioni of the Fred Hutchinson Cancer Center, who has served on a search committee for IHME. “That it is being used for policy decisions and its results interpreted wrongly is a travesty unfolding before our eyes.”
Influential Covid-19 model uses flawed methods and shouldn’t guide U.S. policies, critics say, Stat News
Experts caution it’s misleading to consistently tout one model over another because the whacked-out rainbows aren’t always what they seem. Models have different purposes, and how they arrive at their end result is through a carefully chosen set of equations that differs depending on the programmer.
The hard truth about ‘spaghetti’ models, Palm Beach Post