India to set up its first marine insurance group amid western sanctions
The plan is to get domestic companies to provide insurance cover to Indian ships, which now depend on global clubs for securing ships and cargoes, the secretary said in an interview.
The need for an India-focused P&I entity has also been felt to reduce the country's vulnerability to international sanctions and pressures where insurance coverage is denied to shipping lines operating between countries facing sanctions.
At present, third-party risks in the shipping sector are insured with the International Group of P&I Clubs, a 13-member group based in London that provides liability cover to over 90% of shipping lines globally.
Apart from fleet owners, the government may also contribute some seed money into the new P&l entity to help it get the necessary capital to start underwriting insurance.
The Union ministry of ports, shipping and waterways' (MoPSW) consultative exercise is also to form a coalition of domestic fleet owners operating in coastal and inland waterways routes and form a locally owned P&I entity. Public sector insurance companies and reinsurers would be allowed to join the insurance coalition to give the P&I entity the heft required for providing protection cover.
A tender is already out inviting consultants who can help set up the entity, said an official at an insurance association. Based on consultants' recommendations and its own consultative exercise, MoPSW may finalize a proposal that would then take the Union cabinet's approval.
'We are moving forward on the plan to have a distinct Indian P&I entity. This aim is to have this entity for managing specialized insurance needs of coastal and inland waterway vessels this year itself," Ramachandran said.
A P&I entity or a P&I club is a mutual insurance association that provides risk pooling information and representation for its members. Unlike a marine insurance company, which reports to its shareholders, a P&I club reports only to its members, which include ship owners and operators, charterers, freight folders and warehouse owners.
These act as both insurer providers and insurance receivers for its members and provide coverage for a carrier's third-party open-ended risks. These include risks such as damage caused to cargo during carriage, war risks and risks of environmental damage such as oil spills and pollution, which traditional insurers companies are reluctant to cover.
'In India, mutual insurance is invalid in law. So, if a club kind of setup for marine insurance is being designed, the insurance law will first need to be emended. The idea of a separate P&I entity is not bad given that it is a very specialized nature of insurance that should be provided by people who understand the industry well," said Anil Devli, chief executive officer of the Indian National Shipowners' Association.
'Public sector general insurers and a few private insurers are currently providing ship hull and machinery insurance and also covering cargoes. If an Indian P&I entity is being planned, the government should provide capital and allow public sector insurance companies to pool resources and set up to this specialized entity for the domestic shipping industry," he added.
'Insurers, including GIC (General Insurance Corporation of India), have experience in forming pools for specific covers, which suggests they could potentially come together to support an Indian P&I club. Their participation would be vital in providing proper risk coverage for domestic vessels. By collaborating with insurers, India Club could leverage their expertise and resources to offer comprehensive coverage to vessel owners," said Gaurav Agarwal, head, marine, Prudent Insurance Brokers.
'This has been under discussion for long. Looking at the small vessel operators being targeted initially, it cannot be a club that is basically a 'mutual' created by shipowners. So, the entity conceived should be an insurer/company providing P&I coverage. The tender is out inviting consultants who can help set up such an entity," said R. Balasundaram, secretary general of the Insurance Brokers Association of India.
The government plans to scale up India Club gradually as part of global clubs offering covers to even international shipping lines.
To be sure, the local P&I entity is expected to benefit only a few small shipping lines as 90% of Indian-owned ships are operating on foreign flags of countries such as Panama, Liberia and Kazakhstan that have relaxed regulations.
Also, India Club will face the challenge of providing monumental levels of covers running to billions of dollars as its cover may not be accepted by global traders who largely depend on covers offered by international clubs that provided insurance globally with quick settlement of claims.
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