New rules framed by the government on insurance cover for ships entering Indian ports are attracting private general insurance firms to the shipping sector.
ICICI Lombard General Insurance has floated a new insurance scheme for small shipowners. This caters to their third-party liabilities and expenses (called protection and indemnity, or P-I cover, in shipping terms) that arise from owning and operating ships, a company official said.
The liabilities covered under P&I include death or injury to seamen, passengers and third parties, stowaways or persons saved at sea; collisions or groundings; damage to fixed or floating objects; pollution or wreck removal and towage.
IFFCO-Tokio General Insurance Co. Ltd, a joint venture between fertilizer co-operative IFFCO and The Tokio Marine and Fire Insurance Co. Ltd, Japan has also started offering P&I insurance, mainly for barges operating in Goa. The maximum liability offered under this policy is Rs5 crore.
The joint venture between ICICI Bank, India’s largest private sector bank, and Lombard Canada Ltd, one of the oldest property and casualty insurance companies in Canada Fairfax Financial Holdings Ltdhas introduced the new P&I cover for vessels up to 10,000 gross tonnage (volume of revenue-earning space within the ship) plying along the Indian coast and ocean-going ships on a fixed premium basis.
Shipowners to whom ICICI Lombard has sold the policy, said the insurer was willing to accept a cover up to $100 million (Rs440 crore) per claim.
Indian insurance companies have so far refrained from offering this cover because it is considered a high-risk area. More than 90% of the world’s ships are insured by protection and indemnity clubs, which make up the International Group of P&I Clubs. These Clubs, based in London, Norway, the US and Tokyo, are associations owned and controlled by the insured shipowners. They operate on a non-profit making mutual basis—members pool their resources to meet the losses suffered by individual members.
The P&I Clubs indemnify ship owners against any claims that may arise in different ports of the world to the extent of their legal liability. In other words, they reimburse the owners when they discharge such liability and seek reimbursement under the principle of ‘pay to be paid’.
ICICI Lombard has decided to offer P&I cover on a fixed premium basis like other forms of insurance with the aim of undertaking the business on commercial principles.
Under the new entry rules that were framed in September 2005, no ship can call at an Indian port without an insurance cover from a government-approved P&I Club or an insurance company for meeting the expenses of removal of wreckage in the event of a mishap and for paying compensation for damages caused by an oil spill.
The rules, which were slated to take effect from last August, were put on hold following protests from Indian shipping firms. Smaller shipowners had opposed the rules as they had insured their fleet outside the Government-approved P&I Clubs. Small firms typically take cover from fixed premium insurers as membership of a P&I Club is expensive.
Subsequently, the government had appointed a committee under the Nautical Advisor to lay down the criteria for approving an insurance company whose policy would be considered as valid by a port before allowing entry to a vessel.