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Pandemic risk pool soon, may have govt backstop provision

According to the Irdai committee, the pool would cater to around 4 crore MSME workers and lead to a capacity of Rs 75,000 crore initially, including the provision of a government backstop.

Written by George Mathew
Mumbai | Updated: March 19, 2021 5:45:53 am

The formation of a pandemic risk pool is expected to take shape soon with the Insurance Regulatory and Development Authority of India (IRDAI) considering various options with focus on risk considerations of business continuity.

The pandemic pool is being created as small and medium businesses were hit hard by the Covid pandemic in 2020. “IRDAI exploring options of formation of Indian pandemic risk pool,” said Suresh Mathur, Executive Director, IRDAI. “IRDAI constituted a working group with representatives from insurance and re-insurance industry to explore the option of formation of Indian pandemic risk pool focusing on risk considerations of business continuity,” Mathur said at a CII conference here on Thursday.

According to the IRDAI committee, the pool would cater to around 4 crore MSME workers and lead to a capacity of Rs 75,000 crore initially, including the provision of a government backstop. This could peak to Rs 1.23 lakh crore later, with the backstop being triggered only in the event of a pandemic and if the payouts exceed capacity. While thousands of small units shut down after lockdown was imposed in March 2020, many of them are yet to stage a comeback.

The first phase would cover income losses due to non-damage business interruption caused by a future pandemic and subsequent lockdown for up to 10 employees per enterprise — with maximum reimbursement of Rs 6,500 per employee per month for three months or easing of a lockdown, whichever is earlier.

The Covid pandemic is unlikely to be covered by the pool. As pandemic losses are currently covered under health insurance products, a future outbreak may be covered under the pool in the second phase. In later phases, the coverage may be expanded to the life insurance segment. The pool premium collection is proposed to be invested in government securities or specifically designed bonds by the government. Under the pandemic pool plan, insurance firms — with or without support from governments — come together and contribute money to form the pool and provide protection for payouts to people and companies in the wake of a pandemic.

Meanwhile, after recording a big rise in health insurance sales, insurers, mainly public sector companies, have seen a dip in new premium collection in the month of February. While PSU insurers have recorded a 13.75 per cent decline in premium collection in February 2021 to Rs 1,811 crore, the overall premium income, including private insurers, has fallen by 0.94 per cent to Rs 4,384 crore in February 2020, according to data released by IRDAI.

However, the overall premium collection for the 11 months ended February 2021 has gone up by 13.06 per cent to Rs 52,884. This is mainly because demand for health insurance policies shot up since March 2020 in the wake of the spike in Covid cases. Health premium collection by private insurers increased by 14.19 per cent to Rs 27,698 crore during the 11-month period.

Many health insurers had increased the premium on health policies by 100 per cent recently in the wake of a rise in new premium income and claims. With insurance companies arbitrarily jacking up premiums by up to 100 per cent on health insurance policies, insurance regulator IRDAI has stepped in and asked insurers to desist from unilaterally hiking premiums after making small changes in the policy.

“General and health insurers are not allowed to modify the existing benefits, add new benefits in the existing products which leads to imposing an increase in premium,” IRDAI said in a notification to insurers.

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