Govt likely to launch $1.5-billion reinsurance fund for ships navigating war-hit West Asia

NEW DELHI : War risk insurance premiums for commercial shipping have surged up to 7.5 percent in recent weeks. The Centre may announce a $1.5 billion-fund soon to provide reinsurance cover to Indian vessels travelling through war-hit West Asia, two senior government officials said.

General Insurance Corporation of India (GIC Re) will likely manage the Rs 14,000-crore fund. “The aim is to encourage insurance companies to extend coverage to the Indian vessels sailing in the war-struck waters,” one of the officials cited above told Moneycontrol. “The reinsurance fund will back the insurance companies, as their costs have gone up significantly during these times.”

The fund will likely back only those ships that sail in conflict zones such as the Strait of Hormuz, which has virtually remained closed after the US and Israel launched strikes on Iran on February 28.

Another official said the Reserve Bank of India (RBI) and the Directorate General of Foreign Trade (DGFT) have already announced some steps to help sectors affected by the Iran war and the fund would be in addition to those measures.

Moneycontrol reported on March 11 that the government is examining possible measures to support Indian shipping companies and exporters as insurance costs rise amid the ongoing war, as industry stakeholders have flagged a sharp increase in war risk insurance premiums as tensions escalate in the region.

War risk insurance premiums for commercial shipping have surged up to 7.5 percent in recent weeks, data released by Lloyd’s of London shows.

Premiums have climbed sharply to 1-1.5 percent in many high-risk regions and in extreme cases have surged to 3-7.5 percent of a ship’s value, reflecting the severity of the threat environment. This spike translates into a massive increase in absolute costs.

According to industry executives, within days of hostilities intensifying in West Asia, insurers began issuing cancellation notices on existing war risk covers, often with just seven days’ notice, and reintroducing them at significantly higher rates.

On March 14, at CNBC TV-18 India Business Leader Awards, Commerce and Industry Minister Shri Piyush Goyal had said that commerce ministry is working on setting up certain schemes which will help create an insurance cover should any export cargo be damaged or lost or even inordinately delayed because of the crisis at Red Sea or Strait of Hormuz.