India Evaluates Rs 1,000 Crore War-Risk Coverage for Insurers Amid Strait of Hormuz Disruption
The Indian government is exploring the establishment of a specialized fund aimed at assisting domestic insurers in providing war-risk coverage for vessels navigating through conflict-affected waters, particularly in West Asia. This initiative comes in response to ongoing disruptions linked to the Iran conflict, which have complicated trade movements and led to a withdrawal of global reinsurers from the region. The proposed fund would support insurers as they face challenges in securing coverage for cargo transport, especially through high-risk areas like the Strait of Hormuz.
Government’s Proposal for War-Risk Coverage
The finance ministry is currently reviewing a proposal that would enable domestic insurers to offer coverage for ships operating in high-risk areas. This initiative is particularly crucial as international reinsurers have retreated from the region, making it increasingly difficult and costly to insure cargo transport. A government official stated, “We are examining if a fund can be created as reinsurance is not available in the region.” This fund would act as a safety net, allowing insurers to secure necessary reinsurance support during a time when global players are hesitant to engage.
The proposed arrangement is expected to mirror the Marine Cargo Excluded Territories Pool established in 2022, which was created in response to the Russia-Ukraine conflict and subsequent sanctions. This pool, managed by the state-run General Insurance Corporation of India (GIC Re), provides insurance coverage for marine cargo shipments from designated territories, including Belarus, Ukraine, and Russia, which are typically excluded from coverage due to war-related risks.
Structure and Function of the Proposed Fund
The new fund is anticipated to be structured similarly to the existing Marine Cargo Excluded Territories Pool, which currently comprises 21 members and offers a capacity of ₹484 crore per shipment. GIC Re, as the pool manager, collaborates with an underwriting committee to approve coverage for additional commodities as needed. The corporation holds the largest share of capacity at 51.6 percent and earns a management commission of 2.5 percent on the original gross premium after accounting for obligatory cessions.
As discussions progress, multiple options for the fund’s structure and operational framework are being considered. A decision regarding the establishment of this facility will likely be made after the reopening of the Strait of Hormuz route. The final details concerning the fund’s size, institutional placement, and operational guidelines will depend on the evolving situation in the region.
Potential Coverage for Crude Oil Shipments
In addition to general cargo, the proposed mechanism may extend its coverage to crude oil shipments traversing the Strait of Hormuz. This consideration aims to ensure the continuity of insurance coverage for India-bound cargo, particularly as many global insurers have withdrawn their services in light of the heightened risks. A source familiar with the discussions indicated that the proposed fund could be managed by state-run insurers, led by GIC Re, with an estimated corpus of around ₹1,000 crore.
Industry stakeholders, including exporters and shipping companies, have long advocated for the creation of such a facility. Their support underscores the urgent need for reliable insurance options in the face of increasing geopolitical tensions that threaten trade routes. The establishment of this fund could play a pivotal role in stabilizing cargo transport and ensuring that Indian trade remains resilient amid global uncertainties.
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