Industry body Confederation of Indian Industry (CII) has urged for a creation of a pandemic pool as the devastating impact of the COVID-19 crisis has made financial, administrative and social systems fragile and vulnerable.
CII said that a majority of the pandemic-related risks have been covered by insurance companies in the form of life and health claims.
However, the interruptions and halt in the economic machinery could not be covered by 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, CII said.
It further noted that although on an aggregate, insurance companies have been able to withstand losses caused by the pandemic, the total capital available with them is less than the capital required to absorb those losses.
"CII therefore, urges all stakeholders to recognise 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," it said.
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 (corona kavach) and packages during the pandemic."
CII said that some initial fiscal support from the government would be required, which could gradually be reduced to near zero level as the pool becomes self-sufficient with accumulated surpluses over a period of 12-15 years.
"This is the opportune time for India to have the first-movers advantage in creation of the pandemic pool with a two-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," he added.
Suggesting three points in order to raise capital for the pandemic pool, CII said that Pandemic Bonds in the form of risk-linked securities could be considered to raise at least 5 percent capacity or pool limit. It also said that insurance companies can issue bonds through special purpose vehicles.
Another 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, CII noted.Lastly, it also suggested for a GST waiver on the premium collection of the pool, similar to other government-backed schemes in order to encourage enhanced contribution from individuals and businesses to be covered under it.