The devastating impact of COVID-19 has made the economic, administrative, social and financial systems, fragile and vulnerable across the world. It has had a far-reaching impact both on the lives & livelihood and has impacted almost all the sectors of the economy. Though insurance market, in the past, has provided several solutions to many serious risks faced by the society like terrorism, cyber risks, natural calamity risks etc. the current pandemic is unique by the non-discriminatory expanse of its impact, both in terms of social segments and geographies.
In India, majority of the pandemic related risks have been covered by the Insurance companies as the metaphoric ‘first port of call’ through life and health claims.
Business interruptions due to lockdowns and resultant halted economic activity and choked supply chains, however, could not be covered by the insurance companies in most countries as the loss due to the peril of state-imposed lockdown has not been an explicit inclusive clause in the standard insurance contracts across the world.
Though, as an aggregate, the insurance companies have largely been able to withstand the pandemic related losses till now, the sheer amount of capital required, simultaneously, across the world, to absorb the loss of future variations of pandemics could be significantly more than the total capital available with the entire insurance and reinsurance market across the globe.
Confederation of Indian Industry (CII) therefore, urges all stakeholders to recognize the significance of having a dynamic Pandemic Pool which is governed by availability of capital and modelled for greater capacity, to ensure long-term viability of the risk management solution which is critical for a high impact-low frequency risk like a pandemic. CII highlights that as the risk associated with the pandemic is currently top-of-the-mind issue for most individuals and businesses, their participation and contribution for premium funding can be appropriately solicited. Another consideration is that global reinsurance capital is more likely to be available to the first few nations who start the pool as reinsurance commitment cannot be made to all nations due to the risk of aggregation in the pandemic risk. India needs to expedite the process of set up of the pandemic pool.
CII advises that even though initially fiscal support from central government is required for the successful start of the pool, the government support can gradually reduce to near zero levels, as the pool becomes self-sufficient with accumulated surpluses over a period of 12-15 years.
CII makes 3 important suggestions to raise the necessary capital for the Pandemic Pool.
Firstly, to raise at least 5% capacity or pool limit, Pandemic Bonds in the form of risk-linked securities could be considered. Insurance companies can issue bonds through special purpose vehicles (SPVs) for investors and transfer a specified set of risks to the investor.
Second suggestion is to have larger Private partnership and to tap capital beyond insurance and reinsurance industry by including contribution or premium paid to the pool as eligible CSR expenditure.
Thirdly, waiver of GST for the premium collection for the Pandemic pool, similar to other government backed schemes like agriculture and government health schemes, would encourage enhanced contribution from individuals and businesses to be covered under the pool.