Ensuring equity in the domestic business environment: The Pandemic Insurance Pool

by Team Conscious Carma

The second wave of this ongoing pandemic might force the administration to opt for total lockdown, as it happened in the mid of 2020. The partial lockdown is already effective in many otherwise bustling cities and industrial towns to keep the spread of Covid-19 under control. India is an aspiring High-income country, and for many of us, lifeline (Salary & Wages) is as essential as our lives. The lockdown will reduce the overall consumption in the economy, which is already growing at a snail speed. It is crucial to inject money into businesses to compensate for cash flow disruption caused by the lockdown. Such economic interventions will minimize business failures, ensure employment, and secure jobs. The cash transfers stated above can be funded through innovative insurance policies for industry and off-loading partial risk to the government.

The incidents like 9/11 rerouted the natural course of global reinsurers by opting out of terrorism insurance. However, countries like India with a narrow insurance consumer base came up with creating a terrorism risk insurance pool. Terrorism cover was given as an add-on to the existing property insurance policies. Over the years, this insurance had generated a pool of Rs 2000 cr. It also covered the terrorist attack on businesses such as November 26th, when the iconic Taj Mahal Palace Hotel and the Trident suffered severe property and business losses in Mumbai. Likewise, the insurance industry has come up with a nuclear insurance pool in 2015 to cover the nuclear operators and suppliers to cover corporate liability or losses. This six-year-old insurance plan has built a pool cover of Rs 1500 cr. That gives an advantageous position to domestic insurance companies when they are unable to get help from global insurance companies. 

sign insurance

The recent economic survey of 2020-21, which shows India’s insurance penetration, which stood at 2.71% in 2001, rose steadily to 3.76% in 2019 but remained well below the global average of 7.23%. The penetration for life insurance in India is 2.82%, and the penetration for non-life insurance is much lower at 0.94% as of 2019. Worldwide insurance penetration was 3.35% in the life segment and 3.88% in the non-life segment. In comparison, insurance penetration in some Asian countries such as Malaysia, Thailand, and China was 4.72%, 4.99%, and 4.30%, respectively, in 2019.

The comparative data at hand suggests our insurance market still yet to reach its peak potential to unleash economies of scale; however, it inherits enormous risks due to too many outside variables such as today’s Covidization. That is where the government can step in and bear the residual risk and help the insurance providers and subscribers. The government has a moral obligation and responsibility as it could benefit a large population. 

With the current ongoing crisis, the insurance sector has an opportunity and can take advantage and create a collection for the coronavirus as many businesses are affected. But there is much resistance from global reinsurers at present, unlike in the past isolated cases like Wimbledon Grand Slam had a chance to seek insurance cover against disruption or cancellations of events by the then ongoing epidemic(SARS-CoV-1). No individual insurance company can offer cover without support from global reinsurance companies. They became very cautious following the SARS outbreak and the losses it incurred in some cases. A Hong Kong-based hotel chain, Mandarin Oriental, filed for $16 million for business interruption losses due to the SARS outbreak in 2003. Since then, virus and bacterial infection exclusions have become the norm in insurance policies worldwide. 

Here is the chance for Indian insurance companies, with the support from the state can set the trend and create a pool along with risk-bearing methodology ensuring the survival of insurance providers in facilitating claims arising in the residual risk zone. The state needs to pitch in 5000-1000 crore every year to the pool, the same way it helps in crop and medical health insurance under Ayushman Bharat. The elementary idea of ​​the pool will ensure the owners’ financial capabilities so that they do not have to lay off employees if another pandemic strikes. It won’t apply to the current crisis, but the money will sit in a pool that earns interest on another such opportunity. 

Swathi Vajjhala Marthi, Advocate
Swathi is a legal professional and has extensive experience in dealing with banking and corporate litigation. Her interests are in the areas of International Arbitration and Investment Laws. 

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1 comment

Gopi Prasad May 8, 2021 - 12:20 pm

Nice presentation with facts n figures. New ideas can be generated on the basis of analysis. All the best. Keep writing.


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