India’s re/nsurance sector regulator, the Insurance Regulatory and Development Authority (IRDAI), has suggested setting up a pandemic risk pool with a Rs 75,000 crore (USD 10.2 billion) backstop guarantee from the government.
This is currently in the initial stages, with a view to help MSME workers and migrant labourers facing loss of income.
In a report, IRDAI noted that the actual pool size will depend on the risk covered and its estimated potential losses.
The group has recommended formation of the Indian Pandemic Risk Pool to address losses and unsettlement caused to the informal and low income sectors of the 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.
So far, experts say that business interruption losses caused by the COVID-19 pandemic will be huge and unprecedented, but this is hardly an estimate that can be used as the basis for the formation of insurance pools and backstops.
During the first phase of pandemic pool implementation, business interruption losses focusing on wages of MSME sector and migrant workers will be given priority.
Based on the assumption that 40 million employees and workers will benefit and that pay-out is limited to 3 months maximum, then the total pay-out will be Rs 78,000 crore (USD 10.6 billion).
Approximately 20 to 25 years will be required to grow the pool size to make it self-sufficient, said the report of the panel headed by IRDAI Executive Director Suresh Mathur.
As per the report, the government backstop is understood to trigger only when certain pandemic conditions are met and the pool payout is higher than the premiums collected, the capacity offered by insurers/reinsurers, and the capacity offered by other bonds and surplus of the prior years.
In July, IRDAI formed a working group to examine the possibility of setting up a pandemic risk pool to deal with the risks associated with disruption to economic activity following an outbreak of coronavirus-like health emergencies.
The report further said the pool should provide coverage in a phased manner.
As the micro, small and medium enterprises 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 should cover income losses due to non-damage business interruption resulting from a future pandemic event and subsequent lockdown, the report said.
The coverage under the pool has the potential to be expanded into the life insurance segment in the later phases.