Last Updated: 5/14/2025

Issue: Regulatory approaches to pandemic risk management in the insurance sector have been profoundly reshaped by the COVID-19 pandemic, with long-term implications for any future outbreaks. The NAIC strengthened financial oversight mechanisms in response to widespread solvency concerns. This included the integration of pandemic-specific risk assessments for health insurers into the Financial Analysis Handbook and the enhancement of stress testing of risk-based capital (RBC) models across the life and health sectors. In order to guarantee that insurers maintain liquidity during extended crises, state regulators have implemented dynamic capital adequacy frameworks, and the Life RBC formula now explicitly accounts for mortality and morbidity disruptions resulting from pandemics. These measures are intended to prevent systemic instability, as evidenced by the $14 billion in premiums that auto insurers returned as a result of reduced claims during the COVID-19 pandemic. At the same time, the NAIC expedited digital transformation by mandating virtual market conduct examinations and expanding the Market Conduct Annual Statement (MCAS) system to encompass emerging lines such as pet insurance. This enhanced real-time monitoring of claims handling and consumer protection practices.

The pandemic has also resulted in a greater emphasis on regulatory concentration on network adequacy and behavioral health access, which are critical gap areas. The Centers for Medicare & Medicaid Services (CMS) have finalized regulations that mandate states to validate compliance annually through External Quality Review (EQR) protocols beginning in 2024. These regulations mandate quantitative time/distance standards and appointment wait time metrics for Medicaid/CHIP managed care plans. The 2025 Notice of Benefit and Payment Parameters implemented federal baseline network adequacy requirements for State-Based Marketplaces for commercial plans. These requirements include mandatory pre-certification evaluations and evidence-based exceptions for underserved areas. These reforms are designed to prevent the pervasive provider shortages and delayed care that characterized COVID-19, particularly in behavioral health, where wait time standards now apply to urgent and routine care tiers. The 2023 Health Insurance and Managed Care Committee of the NAIC prioritized these standards, emphasizing their alignment with mental health parity laws in order to address disparities in network composition.

In anticipation of future pandemics, federal backstops and risk transfer mechanisms have acquired momentum as precautionary measures. Although the proposed Pandemic Risk Insurance Act (PRIA)—a federal reinsurance program in the TRIA style—has not yet been enacted, its framework is now being used to inform ongoing NAIC-state collaborations to create hybrid public-private solutions. The viability of parametric triggers associated with WHO pandemic phases is illustrated by the World Bank's Pandemic Emergency Financing Facility (PEF), which disbursed $195.84 million through catastrophe bonds during COVID-19. Insurers are increasingly utilizing comparable instruments, including mortality swaps and industry loss warranties (ILWs), which are indexed to the CDC's Pandemic Intervals Framework. This framework offers six-stage risk assessment protocols. The adoption of parametric products such as PathogenRX is low due to pricing challenges, despite the fact that coverage gaps continue to exist for small enterprises. Standardized pandemic exclusions and mandatory business interruption coverage options are currently the primary focus of regulatory efforts, which are informed by litigation trends resulting from COVID-19 claims denials. Financial fortification, access guarantees, and inventive risk pooling—all of which are layered strategies—reflect a paradigm shift in insurance regulation toward proactive, data-driven pandemic preparedness.

Pandemic exposure can present significant risk to insurers. To further explore the risk of pandemics to the health, life and P/C industries, the Center for Insurance Policy and Research (CIPR) held an event titled The Risk of Pandemics to the Insurance Industry on March 27, 2015 (this is a recent summary of key takeaways from the event). The event covered business continuity planning, the potential financial impact to the industry, modeling and risk management considerations, and capital market solutions.  

In China, where the recent coronavirus outbreak originated, analysts predict minimal impact on the health insurance industry.  Claims pertaining to the virus should be covered by health insurance, a sector that has only a small portion of the insurance market.  According to Moody's, the number of residents with health insurance living in Wuhan, the epicenter of the outbreak, should keep insurance claims manageable.  Only 4% of the insurance premiums underwritten in China cover central China, where Wuhan is located.  Most insurance penetration occurs in the more affluent coastal cities where the coronavirus has had little impact.  Additionally, the Chinese government plans to cover costs exceeding the existing policy amounts through government subsidies.  Finally, reinsurance could partially cover losses for insurers. 

However, the life insurance sales will likely be negatively impacted due to at least 55 million people under quarantine and the subsequent loss of business from consumers.  The monetary loss is only expected to be temporary until the epidemic ceases.

In 2017, state insurance regulators, working through the Financial Analysis (E) Working Group of the Examination Oversight (E) Task Force, added guidance on pandemic prospective risk for health insurers to the NAIC Financial Analysis Handbook. Additionally, state insurance regulators actively monitor and stress test insurers' risk-based capital (RBC) figures to determine whether an insurer has enough capital to sustain catastrophic events, such as pandemics. The life RBC formula includes factors to establish minimum capital requirements to address deterioration of mortality and morbidity experience—including those from pandemics. The Life Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force maintains the RBC formula for life and health insurers.

On March 20, 2020, the NAIC held a virtual event on the impact of COVID-19 on state regulators, industry, and consumers. Video recordings from the event are available for viewing on the NAIC News channel on YouTube.

At the NAIC's 2020 Fall Virtual Meeting, the CIPR hosted a special event on pandemics and business interruption insurance.  A recording of the event, Pandemic Business Interruption Federal Insurance Mechanism - Learning from the Past, Thinking About the Future, is available.