Pandemic pool should have govt and pvt sector participation: Irdai panel

Working group recommends coverage for 40-50 mn MSME workers with pool capacity of ~75,000 cr

The committee formed by the Insurance Regulatory and Development Authority of India (Irdai) to examine the requirement and rationale for setting up a pandemic pool has recommended the formation of an Indian Pandemic Risk Pool, with public-private-government participation.

It has reasoned that this should be done as the quantum of loss because of the pandemic is huge and is beyond the capacity of public or private companies or government alone.

While Covid-19 has caused devastation across all sectors and sections of society, the committee, based on feedback, felt low income groups and micro, small and medium enterprises (MSMES) should be the main beneficiaries of the pool.

The working group felt the product should first cater to prevention of losses from temporary or permanent closure of small business. Hence, it should provide some sort of compensation.

According to the recommendations, the pool should address approximately 40-50

million MSME workers and for that to happen, a pool capacity of ~75,000 crore should be built, where approximately ~2,000 crore could come from industry participants and the rest from the government as a backstop.

The backstop triggers only in the event of pandemic striking and the total loss payouts being higher than the capacity

garnered by the local insurance/reinsurance and international market.

“This relief could lead to protection of employment of such workers and, hence, not only support in providing running expenses of such households but also prevent reverse labour migration. Such migration not only prevents spread of pandemic but also creates less strain on government resources in mid to long term period”, it added.

The country’s largest reinsurer, General Insurance Corporation (GIC Re), which has managed the terrorism pool and the nuclear pool will be an appropriate administrator of the pandemic pool, according to the working group.

According to the recommendations, the product should focus on protecting the salaries of MSME employees’ for up to three months. In terms of compensation, the group recommended a cover of ~6,500 (30-40 per cent) of average minimum wage for a maximum of 10 employees per MSME for a maximum of three months.

Since voluntary covers hardly find takers, the group has proposed a mandatory pool product for MSMES, along with property insurance cover. “Currently, the insurance sector has approximately 2 crore (20 million) fire policies issued to MSMES and, hence, mandatory cover would be the best option to start with. The cover would also be available on standalone basis in case the MSME has no fire cover,” the group recommended.

They estimated a price of ~1,600-2,000 per employee and have proposed that the premium should commence at ~999 per employee, excluding the goods and services tax, during the first year with a gradual annual increase to ~1,596 per employee in 10 years.

“The state governments where we have large MSME concentration could also potentially look to subsidise this premium, in which case, the premium could be brought down in the first few years,” the report said.

For the pandemic pool to work and for such an unanticipated risk, the working group has worked out the capacity design to include premiums from products providing pandemic coverage, capacity from insurers, reinsurers, interest earning from prior surpluses (and after deducting pool expenses), government backstop and pandemic bonds.

In the second phase, it proposed that the pool cover health insurance on excess of loss basis when overall losses cross a threshold for an insurer. The third phase may include providing coverage to the vulnerable affected by an epidemic or pandemic, the coverage can be extended to life insurance segment.