India plans sovereign guarantees for insurers as Iran war heightens shipping risks
A separate US$300 million fund is being set up to help settle any large increase in insurance claims, a source says
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[NEW DELHI] India is planning sovereign guarantees to support insurers that provide cover for vessels travelling in the Persian Gulf as the Middle East war increases the risks to shipping, said government and industry sources.
The plan includes a US$1.5 billion sovereign-guarantee fund to provide insurers with reinsurance support and liquidity should insurance costs remain high, said one government source.
A separate US$300 million fund – with contributions from the country’s insurance industry – is also being set up to help settle any large increase in insurance claims, the same source said.
Maritime war-risk insurance premiums have surged as much as 1,000 per cent in some cases, as the Middle East conflict heightens risks to shipping in the region.
The spike in premiums has sharply raised costs for shipowners, traders and energy companies moving cargo through the route.
India’s insurance regulator recently sought feedback from industry players on the nature of support needed and the means of implementing the funding, three sources in the insurance industry said.
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The guarantee funds could reduce India’s dependence on overseas reinsurance and give insurance companies the comfort they need to continue providing cover, as trade flows resume through the region, they said.
The sources declined to be identified as they were not authorised to speak to the media.
India’s finance ministry and insurance regulator did not immediately respond to requests for comment.
Insurers have hiked premiums
Maritime insurance covers ships and cargoes against risks such as accidents, piracy and conflict.
War-risk cover is typically excluded from the standard policies and must be bought separately, with vessels sailing through conflict zones paying sharply higher rates.
The Middle East conflict began on Feb 28 when the US and Israel launched attacks on Iran. Teheran has since closed the Strait of Hormuz and struck sites in other countries in the region.
Gaurav Agarwal, head of marine specialities, Prudent Insurance Brokers, said: “While war insurance cover is available, varied rates are being charged by insurers, which are significantly elevated and dynamic in nature.”
Rajesh Kumar Singh, the executive president of property at insurance broker Howden India, said that insurers have also expanded the definition of “risky zones” beyond the Strait of Hormuz to include parts of the Red Sea, Gulf of Aden and the Arabian Sea approaches.
Several major reinsurers, including India’s only state-backed reinsurer GIC Re, have either withdrawn cover or sharply raised premiums, leaving the industry with limited reinsurance support, three industry executives said.
GIC Re did not immediately respond to a request for comment.
One of the sources, a senior insurance executive, said that a sovereign-backed Indian pool could help give insurers confidence and reduce the cost of shipping goods via the Persian Gulf region.
Even if the Strait of Hormuz reopens, insurers expect war-risk pricing to remain elevated for an extended period, reflecting the heightened security risks and concerns of renewed disruptions, he said. REUTERS
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