Moots govt. backstop of ₹75,000 crore
A working group of insurance regulator IRDAI has recommended setting up of an Indian Pandemic Risk Pool with public-private-government participation to provide coverage for losses resulting from pandemics like COVID-19 in future. Supporting formation of Indian Pandemic Risk Pool, it said the quantum of loss due to an epidemic/pandemic is huge and beyond the capacity of public and/ or private companies and/or government alone. Thus, a risk pooling mechanism with public-private-government participation would be an appropriate resolution to address similar concern in future. The Working Group, whose members were from reinsurers, insurers and IRDAI, said since MSME and the unorganised sector were the worst hit in COVID-19, the first phase of the proposed pool should cover income losses due to non-damage business interruption resulting from a future pandemic event and subsequent lockdown. In the phase, the coverage will be limited to MSME sector (maximum upto 10 employees per enterprise) and with maximum reimbursement of ₹6,500 per employee per month for three months or lockdown opening whichever is earlier. Pandemic losses are covered under available health insurance products. Hence the coverage for losses in health segment caused due to 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 life insurance segment also in the later phases. An insurance pool can be formed to offer cover for the epidemic and/or pandemic by the various stakeholders with the expectation of capacity in the range of ₹1,500-₹2,000 crore from industry through its own and external capacity. The rest of the capacity will be in the form of government backstop, which triggers only in the event of a pandemic and if the payouts to policy holders exceed the industry and its arranged capacity.The Working Group proposed a government backstop of around ₹75,000 crore at the initial stages, considering that pandemic pool could be designed to cater to about four crore MSME workers. 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. Mechanism of sharing this risk would provide a low cost product. Many countries are in the process of forming similar pools.
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