Government Consideration for War-Risk Insurance Fund
The Indian government is evaluating the establishment of a specialized fund to assist insurers in providing war-risk cover for ships navigating conflict-affected waters in West Asia.
Context and Problem
- Trade disruptions due to the Iran conflict have increased costs and complexities in cargo movement.
- Global reinsurers have ceased offering coverage, creating a gap in insurance for vessels.
Proposed Solution
- The finance ministry is considering a government-backed reinsurance fund to enable domestic insurers to cover high-risk zones like the Strait of Hormuz.
- This initiative would act as a backstop facility to supplement the insurers’ reinsurance capacity.
Existing Model Reference
- The proposed fund may be modeled after the Marine Cargo Excluded Territories Pool created in 2022 in response to the Russia-Ukraine war.
- This pool, managed by GIC Re, covers shipments from excluded territories affected by war and sanctions.
- It holds a capacity of ₹484 crore per shipment, with GIC Re having a 51.6% capacity share.
Future Considerations
- Various options are being explored; the feasibility of the fund depends on the reopening of the Strait of Hormuz route.
- The fund might have a corpus of approximately ₹1,000 crore and could include crude oil shipments.
- State-owned insurers, led by GIC Re, might manage the pool.
Industry Perspective
Exporters and shipping lines have previously advocated for the creation of such a facility to ensure continuous cover for India-bound cargo, as global insurers withdraw coverage.
