Insurers have proposed an insurance pool to be supported by government and premiums from businesses that would protect the economy from the effects of future pandemics and other devastating shocks such as natural disasters and terrorism.
Despite the coronavirus wrecking havoc through business interruptions and loss of incomes, local companies have largely been unable to claim due to “coverage gaps” in the policies they subscribe to, as currently offered by short-term insurers.
Under the policies most common in the market, companies have not been able to claim against the pandemic’s effects as claims for events such as business interruption require “direct physical damage or loss” caused by an insured event on the business or asset insured. For example, a business hoping to claim under business interruption, would have to prove that the coronavirus caused fire or flood damage to their property.
The lack of coverage has meant that companies have sought relief from government, which has pumped at least P5 billion into interventions such as wage subsidies, loan guarantees and tax deferrals.
Newton Jazire, chairperson of the Botswana Short Term Insurance Underwriters Association (BSTIUA) told BusinessWeek that a state-backed national disaster insurance pool would better protect the economy from future shocks, such as the impact the coronavirus is having locally.
“Our view is that for future pandemics and other insurable national disasters, both government and private sector must continue to operate more collaboratively to proactively prepare and establish all core preventative and response measures and initiatives,” he said in a written response.
Jazire, who is also the Botswana Insurance Company CEO, said such a plan which is in place in other countries, would embolden trust from the general public for any future moment of national need.
“This plan could take the formation and structure of a typical insurance pool with say, a total capacity for illustration purposes of P10 billion.
“It would have a specified limit carried by the insurance private sector of say, P1 billion and the government comes in once this underlying limit is eroded for the P9 billion,” he said.
Jazire added: “We are referring to a commercial capacity initiative serving to carry risks
“To make this affordable because of the magnitude of the pandemics, the government too would then set aside premiums commensurate to the risks every year as part of the national disaster management programme, which premium is then used to create this Catastrophe Re (the pool) to be supported as well by rated international reinsurers.”
He explained that the difference between the proposed insurance pool and government’s existing National Disaster Relief Fund is that with insurance for a P10 billion pool, premiums would be much less than the total pool capacity meaning that when the disaster strikes, the payouts would be immediate and readily available.
With the National Disaster Relief Fund on the other hand, the Pula that can be accessed out of the Fund is only the Pula set aside for it. The proposed insurance pool, meanwhile, would have the same cost efficiency of vehicle insurance premiums where the monthly premiums are far less than the overall value of the vehicle.
“We are currently in conversation around the principles and the broader thought-process perspectives,” he said.
“More engagements are to follow once vital data and information required is secured for the analyses and strategic design.
“Insurance underwriting requires us to examine the full extent of the damage and cost of the disruption versus the frequency of such events for us to fully comprehend and design relevant products with appropriate features, attributes and meaningful customer benefits at the right affordable cost.”
Jazire said the pandemic provided an opportunity for Botswana to be “astutely introspective” and consider innovative solutions for managing, containing and then transferring risks related to catastrophes and pandemics, which are “certainly expected to become our more regular experiences and realities”.