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.
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 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.
Mr Chandrajit Banerjee, Director General, CII, said, “The Government of India along with financial regulators including Insurance Regulatory and Development Authority of India (IRDAI) have been working relentlessly on supporting the lives and livelihood by announcing various reform measures, products (like corona kavach) and packages during the pandemic. This is the opportune time for India to have the first-movers advantage in creation of the pandemic pool with a 2 pronged strategy of going beyond the insurers and government by inviting international reinsurers to supplement capital contribution for the pool and to incentivize state governments to participate with additional supplementary capital for greater protection to their denizens.
New Delhi:
Pandemic Pool to manage risks on long-term basisIndustry body CII on Sunday made a case for setting up a 'Pandemic Pool' with initial financial support from the government as a long-term risk management solution to deal with COVID-19-like situations in the future.
Observing that the risk associated with the pandemic is currently a top-of-the-mind issue for most individuals and businesses, the Confederation of Indian Industry (CII) said their participation and contribution for premium funding (for pandemic pool) can be appropriately solicited.
The CII further said, ''Even though initially, fiscal support from the 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.''
It said that though the insurance companies have largely been able to withstand the pandemic-related losses till now, the sheer amount of capital required to absorb the loss of future variations of the pandemics could be significantly more than the total capital available with the entire insurance and reinsurance market across the globe.
''This is the opportune time for India to have the first-mover advantage in the creation of the pandemic pool with a two-pronged strategy of going beyond the insurers and the government by inviting international reinsurers to supplement capital contribution for the pool and to incentivize state governments to participate with additional supplementary capital for greater protection to their denizens,'' it added.
It suggested that to raise at least 5 percent capacity or pool limit, Pandemic Bonds in the form of risk-linked securities could be considered. To have a larger private partnership and to tap capital beyond the insurance and reinsurance industry, including contribution or premium paid to the pool as eligible CSR expenditure. And, waiver of GST for the premium collection for the pool can also be considered.
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.