Private insurers step up commitment to India's new maritime insurance pool

In less than a fortnight of its announcement, private insurers have already committed Rs 1,100 crore to the pool; plans are also afoot to set up an Indian Protection & Indemnity Club

The shipping industry has probably been hit the hardest by the West Asia conflict as insurance charges have spiked to unsustainable levels, with some insurers even invoking force majeure provisions to deny war risk cover for vessels transiting through the Strait of Hormuz. Many insurers also declined to provide hull and cargo cover to ships passing through the Strait. Given the seriousness of the problem, one that could crop up in future as well, the Indian government on April 18 approved the setting up of a domestic maritime insurance pool with a sovereign guarantee of Rs 12,980 crore.

 

In its announcement, the government noted that the move aligns India with major maritime nations such as the United Kingdom, Japan, and South Korea, which have established state-supported insurance frameworks to safeguard national trade interests.

 

“The initiative also fits within the broader Maritime India Vision 2030, which identifies the development of robust insurance infrastructure as a key pillar in positioning India as a leading global maritime power,” the government said in its statement.

How much commitment has the maritime insurance pool received so far?

Less than a month later, more than Rs 1,100 crore has already been committed to the pool, a senior government official told Business Standard. Now, the government is working on setting up a Protection and Indemnity Club (P&I Club) soon, to offer reinsurance support to the maritime insurance pool.

 

“This is aimed at insulating India’s maritime trade from global volatility… to significantly reduce dependence on foreign underwriters and ensure uninterrupted risk coverage for Indian shipping,” a government press note issued after the meeting stated.

How will the sovereign-backed insurance pool operate?

Banking on the pool, Indian insurance companies can now underwrite both hull and cargo risks for ships bringing goods to India at any port. The sovereign cover of Rs 12,980 crore means that if a loss exceeds the capacity of a single insurance company or a consortium of them to make good the loss, the government will step in to cover the difference. As for the unusual number for the sovereign guarantee, the official said it was exactly equal to $1 billion as per exchange rates on the date the pool was formed. “The Budget division of the Finance Ministry was clear, the sum had to be denoted in Indian rupees and came out to this figure,” the official said. The sum will not change in future, even though the exchange rate will vary, this official added.

 

However, the sovereign guarantee may not be utilised, given that the pool has started receiving commitments from private insurance firms, carved out of the premiums they collect. With each safe voyage of a ship, the companies earn premium income, part of which they will share as their contribution to the pool. The commitments show that Indian insurers have already started writing insurance cover for ships bringing goods to India, including through the Strait of Hormuz.

Are insurance premiums and participation improving?

The official said the level of commitment shows the stalled business of providing insurance cover from Indian shores has picked up again. The premium rates for each voyage are the same as those charged by foreign insurers, such as Lloyd’s, but the rates are expected to decline as the corpus increases. What’s more, there are no restrictions requiring vessels to carry the Indian flag, which could potentially allow the pool to extend its reach to foreign-flagged vessels. A key aspect of the cover is also that premium is paid in Indian rupees, thus saving on foreign exchange.

 

The level of interest also contrasts sharply with that towards the US Development Finance Corporation. The company was supposed to provide such cover from the United States following the hostilities, but has not managed to cover anything so far, as per its own data.

 

The official quoted earlier said that among state-run insurers, only the two profit-making companies — New India Assurance and GIC Re — have paid money into the pool so far. The other three loss-making insurance companies — National Insurance Company Limited (NICL), Oriental Insurance Company Limited (OICL), and United India Insurance Company Limited (UIICL) — are not expected to contribute. The official said no fixed level of contribution has been demanded from private sector insurers in order to keep the pool linked to market dynamics. This is a divergence from the model followed by the Nuclear Risks Pool and the Fertiliser Pool, where the share of each company is predetermined.

What coverage does the maritime insurance pool provide?

The maritime pool offers insurance protection to vessels carrying cargo between international ports and India in both directions. It covers the physical structure of ships under hull and machinery insurance, protects goods in transit through cargo insurance, and addresses third-party liabilities such as risks of crew injury and environmental damage, also known as P&I coverage. It also provides war risk insurance for vessels operating in conflict zones and high-risk maritime corridors, ensuring Indian shipping remains operational even in volatile regions.

 

The government estimates that in a couple of years, the corpus of the pool will exceed the size of the sovereign guarantee.

 

India’s only state-run reinsurer, GIC Re, will house the pool. The company — which has a turnover of nearly Rs 45,000 crore and is the world’s ninth-largest reinsurance firm, as per insurance ratings agency AM Best — already runs the nuclear and fertiliser risks pools.

What is the proposed Indian P&I Club and its role?

Regarding the prospects of the proposed P&I Club, floated as a non-profit mutual risk association of shipowners and charterers who buy reinsurance cover from leading reinsurance companies of the world and divide the premium and risks, the official said this was still a work in progress. India has already developed recognition of the P&I clubs of China, Russia, and even Iran, and it is expected that all of them will recognise their Indian counterpart when it is established. Most of India’s seaborne goods trade happens with these countries.

 

State-run Shipping Corporation of India (SCI) — which has about 30 ocean-going ships in its rolls — will take the lead to form the Indian P&I Club. Other companies, including P&I Clubs from Russia, China, and Iran, will be expected to join the club. The formation of the club would allow ships from Indian ports to call on these countries without having to buy costly reinsurance cover from international markets.

 

“We are still far away from creating India as a reinsurance hub for South Asia, but the Maritime Insurance Pool and the Indian P&I Club will make the domestic market self-sufficient,” the government official quoted earlier said.