Insurers discuss growing need for policy to claim Covid-19 losses

Insurers are discussing the growing need for a policy that covers business interruption losses due to a pandemic.

Currently, such a loss 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. 

The discussions are at an initial stage and no timeline has been fixed on when such a product will come out.  Insurers are suggesting that there is a need to create a pool as individually it is very difficult for the companies to provide coverage for such risks with limited capital. 

“There is a reference that has come to the General Insurance Council and this has to be evolved like an industrywide approach. Discussions are on with stakeholders. It is a process and will take us some time,” said  chief executive of a private non-life insurer. “As the rates could be slightly on the higher side for reinsurers when they take cover to protect their balance sheet, discussions are taking place on a government level for creating a pandemic pool. And, insurance regulator is discussing with insurers and reinsurers on the same,” said a source.

Business interruption losses are covered under property damage policy. Hence, only if there is damage to property, “loss of profit” policy gets triggered. These include cases such as fire, breakdown of machinery due to riots, terrorist activities, or natural events like floods, cyclone, and earthquake. 

The current business interruption policies for commercial establishments do not offer any cover for epidemic or pandemic declared by the World Health Organization or the government. Generally, major industries, hotels, and big shops take business loss policy along with property insurance wherein any claims arising due to physical damage from any of the insured peril is admissible. 

“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 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 is not pan India,” said a senior insurance executive at private insurance firm.

Experts say a pool or some kind of government support is essential for such a cover till insurers are able to collect enough premium to do it on their own. At this stage, insurers need to collect huge amounts of premium to sustain this amongst themselves. “This will require the Indian insurance market, the international reinsurance market, and government to come together because the size of capital required is enormous and it needs to be structured like a pool,” said Sanjay Kedia, country head & chief executive of Marsh India Insurance Brokers. 

“How the cover needs to be structured is very important: Whether it will cover only the wages of employees, or gross profit or other expenses, who needs to fund the premium and if the losses incurred is beyond the capability of insurance market, there needs to be a stop-gap arrangement from the government,” he said. 

The onus of the product is on the insurance companies and the regulator as the companies have to file the product.  “As a reinsurer, we are standing firm behind our seeders, especially in the cases where we are leaders in the treaties. The support will depend on what the product looks like because we still do not know when this situation will end," said an executive at GIC Re.