Local ship cover may get an India club flavour

Currently, third-party risks are insured with the International Group of P&I Clubs, a 13-member group based in London. (Bloomberg)
Currently, third-party risks are insured with the International Group of P&I Clubs, a 13-member group based in London. (Bloomberg)

Summary

  • A local protection and indemnity entity supported by the government may turn out cheaper for shipping lines that currently depend on foreign entities

India plans to set up its own protection and indemnity (P&l) entity called India Club for providing third-party maritime insurance to Indian ships operating in the country’s coastal regions and inland waterways, a top government official said. Coverage for shipping in international waters may come at a later point.

Such an entity would provide insurance cover for unforeseen situations such as damage caused to cargo during carriage, damages from war, and from environmental risks. Regular marine insurance covers only the hull and machinery of ships.

“Considering the large-sized coverage required for ships moving on international routes, we are looking to have this P&I cater to coastal shipping and inland waterways as a start," T.K. Ramachandran, secretary in the Union ministry of ports, shipping and waterways, said. “The details and modalities of this entity are still being worked out, but the ministry is ready to provide any seed money required for the initiative."

The ports ministry is attempting to help form a coalition of domestic fleet owners operating on coastal and inland waterways routes for the P&I entity. Public sector insurance companies such as New India Assurance and GIC Re are also being tapped to partner in the initiative.

A local P&I entity supported by the government may also turn out cheaper for shipping lines that currently depend on foreign entities.

A P&I club operates like a cooperative. Its members pay an annual fee, which is then pooled to provide the base for the third-party insurance. Such members would include shipowners, cargo operators, charterers, freight forwarders and warehouse owners. It is a not-for-profit organization that reports to its members, not shareholders. Insurance companies are brought in as partners to underwrite the products and ensure proper processes are followed for coverage.

Welcoming the concept of an India-focused P&I entity, Anil Devli, CEO of the Indian National Shipowners’ Association (INSA), said: “First, it should be done for fleets operating on inland waterways (500-2,000 tonne) by forming a P&I jointly with the Inland Waterways Authority of India (IWAI) and public sector general insurer New India Assurance (NIA), which has some experience in marine insurance. This entity should build on the expertise before we start providing cover for global shipping lines."

The India Club may later look at providing indemnity insurance cover to ships operating on international routes, thus allowing the country to enter the exclusive global club of P&I entities. That would reduce India’s vulnerability to situations where insurance coverage is denied to shipping lines operating between countries facing sanctions.

Currently, third-party risks are insured with the International Group of P&I Clubs, a 13-member group based in London that provides liability cover to more than 90% of shipping lines globally.

The move to go international later makes sense, as the insurance cover can be astronomically high. INSA’s Devli said that coverage and accidental damage for a tanker carrying crude runs up to $8 billion, which would be difficult for any Indian entity to cover at present.

“Coastal and inland shipping is very small to need this kind of support from India-based P&I," said C.R. Vijayan, deputy secretary general, General Insurance Council. “The move will only benefit players like Shipping Corporation and a few small shipping lines, as 90% of Indian owned ships are operating on foreign flags of countries such as Panama, Liberia, Kazakhstan, etc., which have relaxed regulations."

In October, finance minister Nirmala Sitharaman had called for setting up a domestic P&I entity to offer insurance for shipowners, aiming to bolster India’s resilience against international sanctions and to enhance the strategic agility of its shipping operations.

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