With massive disruption expected, Irdai to form ‘pandemic risk pool’

BENGALURU: With the coronavirus pandemic causing massive disruption and losses across sectors, the Insurance Regulatory and Development Authority (Irdai) has proposed creating a “pandemic risk pool”. The aim is to provide cover to risks related to the virus.
A pool refers to the practice of insurance companies coming together and committing funds to meet claims arising out of any particular insured risk in proportion to the business they do. In this manner, claim payout is equally shared among all pool participants. This method is followed when there is too much uncertainty about the risk for any insurer to take a call, like in nuclear risks, or when the losses are high and companies are reluctant to issue policies, as in motor third-party insurance.
The insurance regulator on Monday said that it had formed a nine-member working group with Irdai members, reinsurers and insurers — headed by Irdai executive director Suresh Mathur. The panel will study the need for setting up a pandemic risk pool and provide a rationale for the same. It will also recommend the structure and operating model for the pool.

“The Covid-19 pandemic, which started as a public health crisis, has led to significant disruption in economic activity, mainly due to the measures taken to limit the spread of the disease. It has affected not just health but all sectors of the economy, including but not limited to manufacturing, aviation, tourism, transportation, construction services, agriculture and others,” Irdai said. While private businesses and the economy have suffered massive losses, claims in the non-life industry have been limited to a few thousand cases of hospitalisation.
According to insurers, none of the business interruption risks arising out of a pandemic are covered. Given this, the regulator said there is a need for a long-term solution as some risks like business interruptions, material damages and large-scale unemployment would result in huge losses — much beyond the capacity of government insurers/reinsurers. “Therefore, there is a need to explore the possibility of addressing these risks and any other related risks arising out of a pandemic through the mechanism of a pandemic risk pool,” said Irdai.
In the past, the regulator had promoted the terrorism pool in the aftermath of 9/11 when global reinsurers withdrew terrorism cover. The motor third-party pool was created when private insurers were accused of cherry-picking business in motor and avoiding loss-making third-party cover for commercial vehicles. The most recent pool — the nuclear one — was created to enable private nuclear power plant operators to obtain protection after reinsurers refused to give cover without inspection of sensitive areas of the plant.
Non-life sector contracts 4% in Q1
The non-life insurance industry has logged a degrowth of 4.2% during the first quarter of the current fiscal, Irdai said on Thursday. According to the regulator, the non-life insurance industry closed the first quarter with a premium of Rs 39,330 crore, down from Rs 41,072 crore in the year-ago period. While the stand-alone health and specialised insurance segment posted growth of 15.8% and 24.5% respectively, the general insurers posted a negative growth of 6% for the first quarter. (Agencies)

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