Centre is now considering establishing its own funds as preliminary investment for launching shipping insurance entity, as there is delay in creating a protection and indemnity (P&I) entity to insure cargo vessels. This approach would involve private insurers and shippers contributing at a secondary stage.
More than a year after Union Finance Minister Nirmala Sitharaman’s unexpected announcement calling for a P&I entity, the lack of regulatory clarity and the nascency of the Indian shipping sector have slowed progress on this key initiative.
The Ministry of Ports, Shipping, and Waterways initially requested insurers and shipping companies in February to provide the first layer of insurance for shippers and shipbuilders, with reinsurance expected to be managed by larger global players in a second layer.
According to the Ministry of Ports, Shipping, and Waterways, several rounds of discussions were held regarding this, but the quantum of funds the industry is willing to commit won’t be much. Now the Ministry is exploring options, including the possibility of an initial ‘seed’ fund once legislative provisions are in place.
This could be done directly or through the Maritime Development Fund, but it will need firm structure and clarity from the Department of Financial Services (DFS) before finalising anything, according to officials.
An inter-ministerial consultation process has been ongoing this year to create the marine insurance entity, with industry representatives’ participation.
Officials say the finance ministry is likely to propose an amendment to the Insurance Act, allowing mutual insurance associations — a critical provision that has impeded the formation of a P&I club. For now, the government is Initially, the proposed P&I entity would cover only coastal and riverine vessels, which fall outside the international P&I framework and carry a lower risk profile.
The ministry is exploring international partnerships to pool funds for the insurance entity, potentially with government-backed funds or other P&I clubs, the official said, adding, but this would occur later, when the entity would be handling export-import cargo.
Indian-owned ships are currently insured in various countries, with premiums substantially higher for vessels navigating volatile regions like West Asia and Russia. The shipping ministry and other stakeholders want to explore options, possibly a mutual insurance model.
P&I insurance offers shipowners’ coverage against costs in the event of accidents that could impact cargo, human lives, and the environment. This coverage is typically provided through not-for-profit clubs of like-minded shipowners. The International Group, comprising 12 P&I clubs, offers marine liability coverage to approximately 90-95 percent of the world’s sea tonnage.
