A case study on PayPal, completed by Butler University undergraduates in 2017, could help save the U.S. economy in 2020.
Zach Finn, Clinical Professor and Director of the Davey Risk Management and Insurance program at Butler, and some of his former students have developed the Pandemic Risk Insurance Act (PRIA). If passed, the legislation would provide a reinsurance backstop to cover losses in the insurance sector due to future pandemic outbreaks, such as the ongoing COVID-19 coronavirus crisis. The act has already been adopted by the U.S. House Financial Services Committee, which is calling for its passing in Washington, DC.
The policy combines the students’ 2017 case study work on mitigation and monetization of global cyber risk—essentially, steps to reduce the negative effects of threats and disasters on business continuity—with a framework similar to the Terrorism Risk Insurance Act. The students studied the possibility of a black swan—a rare, unpredictable event with severe consequences that would lead to a cyber shutdown in America. Their solution was the development of a hypothetical Cyber Risk Insurance Act, which would protect the United States against the financial impacts of a widespread cyber-attack. The idea and research were meant to urge a federal backstop for uninsured losses resulting from the shutdown of large portions of the economy.
Now, the PRIA draws on that concept. It would create a federal backstop—or last-resort financial support—for future, and possibly even current, losses that companies would face from a pandemic event. Finn sent the act to Indiana and federal governments in mid-March, and it has already landed on desks in the White House and Congress.
“We will never have a March Madness again unless the government backstops it,” Finn says. “The PRIA would allow businesses to have a fair shot of getting coverage in the case of a pandemic. No insurance companies would take this on now, so that kind of protection would require an act like this. Without a backstop, what happens if we have to shut down every 10 years like this? What if we have to shut down every three years like this?”
Congresswoman Maxine Waters (D-CA), Chair of the U.S. House Financial Services Committee, explains her support of the PRIA, “By requiring higher capital and liquidity buffers, banks are well-positioned to continue lending and play an important countercyclical role. However, America’s consumers, small businesses, and vulnerable populations are suffering. It is time for a policy and fiscal response to address their needs.”
Finn says the act would protect venues from losing revenue due to the cancellation of large events like the NCAA basketball tournament. It would also lessen the ripple effect that major event losses can have on area businesses.
“If you’re running a major convention center or something like Lucas Oil Stadium,” Finn says, “it would be a completely common professional standard that they would offer pandemic insurance.”
The PRIA could also provide an alternative to federal government bailouts, Finn continues. Businesses do take advantage of business interruption insurance, but that only covers events like fire, lightning, or wind. Business loss due to pandemics are not in the mix, yet.
Real life application
Nick Fox ’17 was part of the four-student team representing Butler at the spring 2017 Spencer Education Foundation’s Risk Management Challenge case competition, which explored options for insuring PayPal. His teammates included Erin Bundy ’17, Jessica Parada ’17, and Matt Pauszek ’17.
While placing third in the competition, the students’ analysis of what PayPal could do in the event of a cyber blackout turned heads. The PayPal risk manager congratulated the Butler students and took their Cyber Risk Insurance Act into serious consideration.
“She said our solution could truly be implemented in real life,” Fox recalls. “Three years removed, it could still be a focal point in the industry. It adds even more validity to the work we did.”
The students’ proposition was meant to protect businesses from a dire circumstance like the internet crashing or a global pandemic. It’s debatable which event would be more catastrophic, but Finn says the students’ ideas from three years ago could help the U.S. today.
Climbing the insurance ranks
Today, Fox and his former teammates are all advancing within their respective insurance companies. Fox finished his studies at Butler a semester early and was quickly hired as a cyber risk analyst for middle market corporations and businesses at Marsh & McLennan Companies, based out of Chicago, Illinois. He is currently transitioning to a consultant position, working with risk managers and chief financial officers of Fortune 500 companies.
“The past few months, I’ve been focusing on emerging risks, one of which is COVID-19,” Fox says. “I’ve been consulting with different clients on things like violent threat modeling and cyber stress tests.”
Pauszek is a Risk Management Analyst for the University of Notre Dame. He has leaned on his Butler experience, especially since COVID-19 grew to pandemic levels in March.
“Faced with situations of uncertainty and crisis, the lessons I learned have equipped me with both the technical industry knowledge and the overall confidence to identify and execute creative business solutions,” Pauszek says. “I believe the Davey Program has built a culture that emphasizes and encourages students to approach their careers with an innovative outlook and careful consideration for others that makes them extremely valuable in their surrounding communities.”
Fox considers his training at Butler key to his early career success, too. The enactment of PRIA would be another boost to his career.
“It’ll put Butler University itself in its rightful place on the map in terms of Risk Management and Insurance,” Fox says. “This is going to create an opportunity for us to put our ideas in the forefront of the country.”
The PRIA is also fast-ascending. The piece of potential policy could be a boost to the U.S. economy in years to come.
“It’s not really a question of if another pandemic is going to happen,” Fox says, “it’s more so when and how serious.”
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