The Indian government is planning to set up a fund to specifically support insurance companies in providing war risk insurance for ships plying the country and passing through conflict-affected waters in West Asia, the Economic Times of India reported, citing people familiar with the matter.
As we have previously reported, the conflict in the Middle East has disrupted important trade flows, and global reinsurers have canceled insurance or rewritten it at higher rates within a short period of time, causing maritime war insurance premiums for ships passing through the Strait of Hormuz to fluctuate, but increasing by as much as 20 times the standard 0.25% of the ship’s insured value.
The country’s finance ministry is currently evaluating the proposal, which would enable domestic insurers to extend coverage to ships transiting high-risk areas such as the Strait of Hormuz, backed by government reinsurance, India’s Economic Times reported.
A government official told the publication, “We are looking at the possibility of setting up a fund as reinsurance is not available in the region. This will be a fallback facility to enhance the capacity of supplementary insurers to obtain reinsurance in the event of global reinsurance exits.”
The report noted that the facility could be similar to the territorial pool of maritime cargo exclusions established in 2022 as a result of the Russia-Ukraine war and related sanctions. The pool, managed by the state-run General Insurance Corporation of India (GIC Re), provides insurance for sea shipments of fertilizers and other commodities from “excluded territories”.
Public disclosures show that global insurance companies currently do not cover these risks due to war and international sanctions. The consortium has 21 members and has a capacity of Rs 484 crore per consignment.
Under the existing framework, GIC Re and the underwriting committee approve coverage for new items as needed. The reinsurer has the largest share of capacity at 51.6% and earns a management commission of 2.5% on the original gross premium net of mandatory reinsurance.
The government official also told ET that several options are being studied and setting up such a facility will be feasible only after the Strait of Hormuz route is opened. Final decisions on structure, size and placement will be made accordingly, according to people familiar with the matter.
The person also told the publication that discussions are currently underway whether the latest facility could cover crude oil shipments through the Strait of Hormuz, in addition to other cargoes. “The issue is being discussed to ensure continuity of cover for cargo shipped to India as most global insurance companies have withdrawn cover,” the official told The Economic Times.
In addition, Rajesh Kumar Sinha, special secretary of the Indian Ministry of Shipping, said at an inter-ministerial briefing that as security issues in sensitive maritime areas continue to evolve, war risk premiums for ships have increased.
He commented: “An additional war risk premium is now being imposed. Under normal circumstances it is very low, around 0.01% or 0.02%. The increase in premium depends on the risk exposure of the ship’s route, especially when entering a conflict area. If the ship enters a war zone, sails in such an area or enters any high-risk area, the war risk premium will increase.”
ReinsuranceNe.ws reports that the Indian government is considering setting up a war risk fund for ships passing through conflict-affected waters.