India’s insurance regulator mulls pandemic risk pool

The Insurance Regulatory and Development Authority of India (IRDAI) is looking at the introduction of a pandemic risk pool. A working group has produced a report for the IRDAI, which recommends the formation of an Indian pandemic risk pool “to address losses and unsettlement caused to the informal and low-income sectors of society, and serve as a medium of providing relief to these sectors by the government in case of any such pandemic or epidemic events in future”.

The report states that the possibility of future pandemics occuring “can no longer be ruled out”. It continues: “Doling out one-time ex gratia packages is not a viable long-term solution to such occurrences. Though business groups have suffered huge losses due to business interruption, they can’t get insurance claims as most of their policies exclude pandemic cover. One-time stimulus by government equivalent to such a huge proportion of GDP is not economically viable each time a pandemic occurs. Thus arises the need for a systematically designed, well-structured pandemic pool.”

It adds that it is evident that cover for pandemic risk cannot be provided solely by private commercial insurance and reinsurance systems. “Pandemic risk being a systemic risk, it is too large to be taken on by the public and/or private insurance sector or governments alone. To protect individuals and the economy from suffering because of business failure due to such epidemic/pandemic events in future, it was considered appropriate to explore the option of risk sharing by public and private insurers with the government of India in the form of an Indian pandemic risk pool,” the report states.

Among its recommendations is that the Indian reinsurer, GIC Re, which has experience of managing the Indian terrorism pool and Indian nuclear pool, would be an appropriate administrator for the proposed pandemic pool. Participation would be mandatory for the sectors that are covered under the pool, either as a standalone product providing coverage for the event or as an add-on within existing products. Claims payment would be parametric in nature.

The report recommends: “An ideal size to start the pandemic pool could be designed to cater for approximate four-crore micro, small and medium-sized enterprise (MSME) workers, which would lead to a pool capacity of approximately INR75,000 crores, wherein a capacity of approximate INR2000 crores could be expected from the industry participants and a substantial part coming from government in the form of a backstop.”

It also recommends: “As MSMEs and the unorganised sector are the worst-affected segments of society during the current Covid-19 pandemic in India, the first phase of the pool shall cover income losses due to non-damage business interruption resulting from a future pandemic event and subsequent lockdown. Pandemic losses are covered under presently available health insurance products, hence the coverage for losses in the health segment caused by a pandemic event, beyond a threshold, may be covered under the pool in the second phase. The coverage under the pool may be expanded to the life insurance segment also in the later phases.”