Insurance for crude oil importers from Iran to take time

The US has lifted its economic sanctions on Iran. While this is positive from an insurance perspective, some more steps are required before companies can freely take insurance for crude oil imports.

G Srinivasan, chairman and managing director of New India Assurance, termed this a positive development given the difficulties Indian insurers used to face to insure refineries importing Iranian crude.

“Now, we will get capacity from reinsurers and even Iranian reinsurers could come forward to provide a cover,” he said.

In 2013, when Iranian crude importing refineries had to face problems as insurance firms declined to extend full coverage to refiners processing Iranian crude, citing lack of reinsurance coverage.

For this, a Rs 2,000-crore Indian Energy Insurance Pool was proposed to cover the refineries that were importing crude oil from Iran. However, this failed to take off due to the differences in opinion between oil companies and the former government on the size of the cover and pool.

While oil companies were asking for a cover of Rs 9,500-11,000 crore, the government offered only Rs 2,000 crore. Of the Rs 2,000-crore insurance pool, the petroleum ministry was to contribute around Rs 1,000 crore through the Oil Industry Development Board, and the finance ministry another Rs 1,000 crore.State-owned general insurers had also invited their private sector counterparts to be part of this pool, but none of the latter accepted, citing high associated risks.

Now that the US has lifted its sanctions, insurance companies said the demand for covers for crude oil importers would be back. However, they cautioned that only after the United Nations lifts its sanctions will there be availability of reinsurance capacity.

A senior general insurance executive said reinsurers from Europe were yet to lift the sanctions and they would do so only after the United Nations does it. Hence, covers will be available only after this.

Indian insurers used to depend on European companies to re-insure their risks. However, with the sanctions on trade with Iran from both the US and the European Union, they had refused to re-insure.

Large sized covers like these are only given if the particular insurer or group of insurers have enough reinsurance capacity to deal with the high risks involved in this process.