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September 19, 2020
A working group set up by IRDAI has recommended to set up a pandemic risk pool for India.
The report submitted by the group to IRDAI said that the actual pool size will depend on the risks covered and the estimated potential losses. However, in the initial stages, it should have $10bn of hedge as guarantee from the government.
The recommended ‘Indian Pandemic Risk Pool’ will be used to address losses caused to low-income sectors of society and will serve as a medium of providing relief to these sectors by the government in case of any future pandemic events.
The working group also proposed that in the first phase of this pandemic pool implementation business interruption impacting the wages of the MSME sector and migrant workers should be given preference.The total pay-out is expected to be around $10.51bn with the estimate of 40m employees and workers getting benefits and pay-outs limited to a maximum of three months.The report also suggested that in subsequent phases, pandemic coverage will be extended to other lines of business. Consequently the exposure will increase and the government backstop requirement will increase to $17bn .
IRDAI executive director and chairman of the working group Suresh Mathur said the pool would require around 20 to 25 years to grow before it becomes self-sufficient.
According to the report, the government backstop will be utilised only when a pandemic trigger strikes and the pool pay-out is higher than the premiums collected, capacity offered by (re)insurers, capacity offered by other bonds and surplus of the prior years.
The working group suggested that Indian Reinsurer GIC Re which has experience in managing the Indian market terrorism risk pool and the nuclear risk insurance pool in India, would be an apt administrator for the proposed pandemic pool.