The insurance regulator -- Insurance Regulatory and Development Authority (Irdai) -- has constituted a working group to study the feasibility of forming a 'pandemic risk pool' and make recommendations regarding the same so that various risks arising out of a pandemic can be addressed. The group has to submit its report on the subject in the next eight weeks.

“There is a need to examine long-term solutions to address the various risks which have been triggered by the current pandemic and offer protection in case of a future similar crisis. Some of the risks like business interruption losses without concurrent material damage loss, loss of employment would result in huge losses much beyond the capacity of Government /Insurers /Reinsurers”, the insurance regulator said.

“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”, it added.

The regulator has formed a nine member committee headed by Suresh Mathur, Executive Director, Irdai. The other members in the committee include Suchita Gupta, General Manager GIC Re, Hitesh Kotak, Ceo Munich Re India, Ankur Nijhawan, Ceo Axa India Insurance, Susilendra Rao, Chief Manager United India Insurance, Anita Yadav, VP Bajaj Allianz General Insurance and the rest are internal members of Irdai.

The terms of reference for the working group include setting up a pandemic pool, recommending the structure and operating model for the pool.

The current on-going pandemic (Covid19) saw government, both at the Center and states, enforcing stringent lockdowns, thus resulting in businesses suffering a great deal. But, they could not claim damages due to the lockdown from insurers as it did not involve loss from damage to property, which is essential for the “loss of profit” clause to get triggered in business interruption policies.

Currently, losses incurred by businesses due to a pandemic is not covered by insurance companies as it does not involve damage to property. However, given the extent of disruption, the Covid-19 has caused to businesses, insurers have had discussions on the feasibility of such a product and on the broad contours on how such a product can be developed.

Insurers were in discussion with all the stakeholders as it was felt that there is a need to provide coverage against risks arising out of a pandemic in the future, taking lessons from the current experience.

Insurers had suggested that the only way business interruption losses can be taken care of in a pandemic situation is if a pandemic pool is formed because the basic difference in case of a catastrophe and a pandemic is in the latter, the entire economy goes for a toss versus terrorism incident or a catastrophic incident where losses come in a from a particular place but it does not pan India.

Insurers have formed a pool to cover risks arising out of terrorist activity.