The Ministry of Ports, Shipping, and Waterways has hired seasoned professionals to conduct a comprehensive feasibility study on the possibility of creating a Protection and Indemnity (P&1) company on a mutual or fixed premium basis.
Even though there were concerns about the notion given India’s minuscule tonnage, the action was taken more than a year after Finance Minister Nirmala Sitharaman emphasized the need to establish a fully functional P&I firm that is based in India and governed by the nation.
According to the finance minister, a local P&I organization “would lessen India’s susceptibility to global sanctions and pressures to provide greater strategic flexibility in shipping operations.”
The maritime administration of India, the Directorate General of Shipping, has invited bids from consulting firms to create a strategic roadmap that includes financial models, governance structures, legal and regulatory frameworks, and reinsurance strategies for the establishment and operation of a local P&I entity on a mutual or fixed premium basis.
Protection and indemnity (P&I) insurance is the term used to describe third-party obligations in the shipping industry that result from operating ships, such as oil pollution, wreck disposal, and damage to port property.
The International Group of Protection and Indemnity Clubs (IG Clubs), a 12-member organization with its headquarters in London, insures such third-party risks worldwide. It covers the liability of approximately 90% of all oceangoing ships worldwide by capacity (tonnage), and it caps individual claims involving pollution damage and wreck removal at $3.1 billion.
Every Group Club is a separate, non-profit mutual insurance organization that protects its members who are shipowners and charterers from third-party liabilities resulting from the usage and operation of ships. Every Club is owned by its members who are shipowners and charterers, and a board of directors, or committee, chosen from among them, is in charge of managing its operations and activities.
While the 12 IG Clubs vie for ship owners’ business worldwide, they band together to split the biggest claims, which total more than $10 million per incident and vessel.
The Clubs split up to $100 million among themselves. Additionally, they have the world’s largest reinsurance contract with 70 international re-insurers, covering up to $3.1 billion in claims.
In order to identify trends, important players, and market dynamics, the consultant that D G Shipping has recruited will be responsible for evaluating the global P&I insurance market, including the International Groups or IG Clubs.
Reviewing non-IG businesses to examine their fixed premium idea is part of the work’s scope.
It must compare the current non-IG P&I companies in China and Japan that operate on a mutual or fixed premium basis. Singapore, Russia, South Korea, Iran, and other countries highlight best practices, difficulties, and lessons learned that might be applied to the Indian setting.
In addition to creating a phased implementation strategy with deadlines, the consultant must provide a sustainable business model for the Indian P&I organization that includes membership structure, premium setting, and claims handling procedures.
To guarantee the P&I entity’s financial stability, the consultant will need to recommend a reinsurance plan, including possible alliances with regional and foreign reinsurers.
It will examine the number of boats, coverage types, premium outlays, and service gaps in the current P&I insurance market in India.
A thorough financial study comprising predicted premium revenue, prospective reserves, operational expenses, and break-even analysis must be carried out as part of the work. Additionally, the sustainability of the P&I company on a mutual or fixed premium basis must be evaluated over the short, medium, and long term.
The consultant must assess the financial advantages of creating an Indian P&I company, taking into account the impact on legal services and maritime arbitration, employment creation, and foreign exchange savings.
In order to identify potential risks, such as market, operational, financial, and legal concerns, and to establish mitigation plans, the scope of work includes a risk analysis.
The assignment includes a comparative study of international maritime law standards, an analysis of India’s legal and regulatory framework with an emphasis on licensing, taxation, reinsurance, and compliance with international maritime law, an evaluation of the current frameworks and regulations, the identification of bottlenecks, and the proposal of solutions.
