Updated: September 18, 2020 7:05:23 am
According to a committee report, the group would supply around 4 million MSMEs workers and generate a capacity of Rs 75 billion initially, including the provision of a government backing.
Amit the Covid outbreak, the Insurance Regulatory and Development Authority of India (IRDAI) is considering a recommendation from its working committee to establish a pandemic risk group to address the losses and displacement caused to the informal and low-income sectors in the event of another similar crisis in the future.
According to a committee report, the group would supply around 4 million MSME workers and lead to a capacity of Rs 75,000 crore initially, including the provision of a government backing. This could peak at Rs 1.23 lakh crore later, and the backup will kick in only in the event of a pandemic and if payments exceed capacity.
Additional coverage is needed
Two similar consortia already exist to cover terrorism and nuclear risks. However, for the pandemic group, the 2 billion rupees that insurance companies could contribute may not be enough, as a significant part of the 4 million million employees of MSMEs would need this coverage.
While around Rs 2 billion could be expected from insurers and reinsurers, a substantial part of the pool should come from the government in the form of backing, according to the report.
Under these groups, insurance companies, with or without the support of governments, come together to provide protection for payments to individuals and businesses after catastrophic events, such as floods, earthquakes or a pandemic.
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“The Indian reinsurer, GIC Re, which has experience in managing the Indian terror group and the Indian nuclear group in India, should be a fit administrator for the proposed pandemic cluster,” said the panel, led by the executive director of IRDAI, Suresh Mathur.
“There are apprehensions about Covid. It is truly a global pandemic, ”said IRDAI President Subhash Khuntia.
According to the panel, the first phase would cover revenue losses due to undamaged business interruption caused by a future pandemic and subsequent closure of up to 10 employees per company, with a maximum reimbursement of Rs 6,500 per employee per month for three months. or a reduction. of a confinement, whichever occurs first.
Since pandemic losses are currently covered by health insurance products, a future outbreak can be covered from the pool in the second phase. In later phases, coverage can be extended to the life insurance segment. “It is proposed that the group’s premium proceeds be invested in government securities or bonds specifically designed by the government,” the panel said.
The committee estimated that the total payment will be 78 billion rupees, assuming 4 million rupee employees and workers make benefits and the payment is limited to a maximum of three months.
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Similar proposals from pandemic groups around the world, including in the US, France, and Germany, are in various stages of approval and heavily dependent on government support in the form of backing.
The IRDAI committee has emphasized that the backstop is activated only in the event of a pandemic and the total loss payments are higher than the capacity gained by local insurance and reinsurance and international markets. In such a scenario, the government does not technically need to make any advance allocation to form the group.
Based on various scenarios, the panel estimated that government backing could be in the initial range of Rs 75,000 crore (Year 1), peaking at Rs 1.23,000 crore and then plunging to Rs 80,000 crore (Year 10). “It will take approximately 20 to 25 years to increase the size of the pool and make it self-sufficient,” the committee said.
According to the panel, there are estimates that current business interruption premiums in some markets should be collected over 100 years to cover two months of Covid-related costs. The lockdown measures have increased the risk of business interruption, he said.
“Covid-19 is affecting businesses indiscriminately and does not skimp on any. Subsequently, the closure has created the need for coverage against an epidemic or a pandemic to cover losses due to non-real estate business interruptions, ”the panel said.
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