Lloyd’s spurns India’s demand to reverse expansion of risk zone

Lloyd’s spurns India’s demand to reverse expansion of risk zone

Bangalore: Global insurer Lloyd’s of London has spurned India’s demand to reverse a recent labelling of almost all of the country’s west coast as prone to pirate attacks.

In December, the joint war committee, a global body that assesses marine insurance risks, expanded large parts of northern Indian Ocean as a conflict zone—the eastern border of which extends to the west coast of India—citing increased instances of sea hijacking in the region.

This has raised insurance costs of cargo reaching or leaving India’s western ports.

The committee comprises underwriters from the Lloyd’s Market Association (LMA) and the International Underwriting Association (IUA).

“It is generally understood that piracy (in the region) remains a threat—insurers therefore have to act accordingly," Neil Roberts, senior executive–underwriting, Lloyd’s Market Association, said in an emailed reply.

India has been lobbying Lloyd’s and the International Maritime Organization (IMO), the global maritime regulator, to overturn the expansion of the areas considered prone to pirate attacks, claiming the decision has triggered a 300% jump in ship insurance costs. This, in turn, has raised transaction costs of commodities shipped into India.

India’s government and shipping companies informed the joint war committee in May that stepped-up naval patrols have driven away pirates.

“It would seem self-evident that if Indian waters were safe, there would be no need for naval patrols," said Roberts.

M.M. Saggi, nautical adviser to the government, told the 89th session of the Maritime Safety Committee of IMO, held in London between 11 and 20 May, that the expansion of the war risk zone had a “direct implication to the transaction cost of commodities to Indian ports".

He added: “Considering that there have been no attacks reported for the last two months within 500 nautical miles from the Indian coast, after Indian Navy has taken remedial measures, it is imperative that the eastern boundary of ‘war zone’ be reduced to an appropriate longitude if not brought back to earlier limit."

Roberts, however, said additional premiums are not automatic.

“The listing (of an expanded piracy risk zone) triggers a notification to underwriters so individual voyages can be evaluated and if it is believed there is a reduced threat, any premiums charged will quickly demonstrate that reduction," he said. If ship owners had issues with premiums they should take up the matter with their broker and the underwriter concerned, he added.

“Interestingly, in other similar examples from different countries in the past, when challenged, there was no further contact as on examination it transpired that the mark up had not come from insurers," Roberts said.

Local ship owners said the higher premiums were denting margins during a time of over capacity and rising costs.

“The shipping industry is facing very challenging times," said an executive at one of the top three shipping firms in India. “Everybody is clutching at straws; so every penny counts," she said.

The country’s biggest ocean carrier, Shipping Corp. of India Ltd, reported a net loss of 6 crore in the March quarter. Net profit for India’s biggest private ocean carrier Great Eastern Shipping Co. Ltd dropped 93% in the fourth quarter, and for Essar Shipping Ports and Logistics Ltd, 78%.