India charts course for homegrown maritime insurer blueprint: Study

India faces $45-60 mn foreign outflows in P&I costs, according to a govt study

An Indian Protection and Indemnity (P&I) club is feasible, albeit on a fixed premium model, a study commissioned by the maritime regulator has found, a move that could potentially save billions in shipping insurance outflows to foreign insurers. 

 

P&I is a central pillar of marine insurance but is entirely controlled by 12 foreign ‘P&I clubs’, whose members are shipping companies that pool in money and cover each other’s claims. Indian shipping companies or traders have to pay P&I clubs to insure goods on the high seas.

 

P&I Clubs cover nearly 90 per cent of all ocean trade and collect $3.8 billion in annual insurance premiums. According to government estimates, Indian operators send out an estimated $45-60 million in annual P&I premium to these clubs.

 

This is not the way that most international P&I Clubs operate today, but would be an important start, according to the Directorate General (DG) of Shipping, who had commissioned Ace Insurance Brokers last July to conduct the study.

 

The feasibility study concludes that an Indian P&I entity is “technically and financially feasible”, beginning with a fixed-premium model and scaling to a mutual model, supported by domestic reinsurance and regulatory facilitation, according to the regulator. The report was awaited by policymakers.

 

Under a fixed-premium model, the insurer charges a set premium for the year, carries the risk on its own capital, and makes no further demand on the member — cover is predictable and easy to budget, and the entity can launch quickly, but capacity is limited by capital and members share no upside.

 

Under a mutual model, the members are themselves the insurers: They pay an advance call, may be asked for supplementary calls if claims exceed expectations, and receive returns when experience is good.

 

According to the DG, mutuality delivers far greater capacity and lower long-run cost but requires scale, member solidarity and a track record for owners to trust it with their largest liabilities.

 

The recommended path for the P&I entity is a phased build, anchored by General Insurance Corporation of India (GIC Re) and global reinsurers, compliant with DG Shipping frameworks, and supported initially by experienced international service providers for claims handling and security issuance.

 

The need for an Indian P&I club was highlighted by finance minister Nirmala Sitharaman in 2023, who said it was essential for India to protect its trade during times of global disruptions.

 

The conversation around the entity had gained momentum after the West Asia crisis began in February, spiking insurance premiums significantly and leaving Indian exporters and importers facing massive cost increases.

 

In March, Rajesh Kumar Sinha, former special secretary at the shipping ministry had said that the finance ministry and the shipping ministry had been coordinating and were awaiting the findings of the study to take the next steps towards setting it up.

 

A month later, India launched the Bharat Maritime Insurance Pool – a sovereign-backed fund which would reduce insurance premiums for international seaborne shipments and provide stability to Indian traders.

 

The pool – managed by GIC Re – has reportedly issued over 80 policies within the first 30 days of its start of operations. It carries $1.5 billion of total pool capacity, a sovereign guarantee of Rs 12,980 crore, and a $100 million claim threshold for the pool’s own resources.

 

During the awarding of the first policies under the pool, former financial services secretary M Nagaraju had also said that the pool paves way for a P&I entity.

 

Earlier, officials had flagged that a mutual P&I club required changes to the Insurance Act.

 

According to the study’s findings, the recommended approach is also how some international P&I clubs developed their marine insurers. Both China P&I Club and Korea P&I Club were established in a similar fashion, according to the regulator. 

The safety net 

• International Group P&I Clubs insure nearly 90% of global ocean trade
• $3.8 bn worth of annual premiums collected by global P&I Club network
• India launched the Bharat Maritime Insurance Pool with $1.5 billion capacity in April
• Pool supported by a sovereign guarantee of ₹12,980 crore