India needs to secure backing from global ship owners to float a locally-owned Protection and Indemnity (P&I) entity – a mutual cover typically formed by fleet owners internationally against third party risks – due to the miniscule size of Indian flagged ships, says industry experts.
“With the current size of the Indian fleet, we need to win the hearts and minds of the international market. We need to grow so that people have confidence in dealing with the insurance hub or whoever is available in India. Unless we create that, what are the chances of going forward remains a question mark,” said Savraj Mehta, Chief Commercial Officer, NorthStandard Ltd, one of the world’s top marine insurers.
“We have to ask ourselves, if we are looking for change, is it going to be equivalent to what ship owners are having, is it going to be better than what we are promising them. Those are the two very important questions,” said Mehta.
“A need has been felt to have a full-fledged India owned and India based P&I entity. I would think it is important to have a P&I entity of India’s own ownership,” Finance Minister Nirmala Sitharaman said on 19 October, while speaking at the Global Maritime India Summit held in Mumbai.
Explaining what that means to India, she said, “It would reduce India’s vulnerability to international sanctions and pressures to provide greater strategic flexibility in shipping operations”.
“It would also provide a foothold into the specialised segments of P&I business which is currently dominated by very few players internationally where presently India doesn’t have a presence”.
“I would think that it is a very important thing which we need to work on. It would also provide protection of liabilities to ships operating in coastal waters as well as inland waterways during their operations”, she stated.
India struggled to get tankers and insurance to transport crude from Russia after the member states of the European Union prohibited insurers from covering tankers carrying Russian oil anywhere in the world following the Kremlin’s invasion of Ukraine.
India still managed to ramp up oil purchases from Russia to take advantage of the heavily discounted supplies with ships and insurance arranged by Moscow.
In shipping, third-party liabilities arising from operating ships such as oil pollution, wreck removal and damage to port property are commonly referred to as protection and indemnity (P&I) insurance.
Globally, such third-party risks are insured with the International Group of Protection and Indemnity Clubs (IG Clubs), a 12-member group based in London that provides liability cover to about 90 per cent of the world’s ocean-going ships by capacity (tonnage), placing a $3.1-billion limit on individual claims that involve pollution damage and wreck removal.
Each Group Club is an independent, not-for-profit mutual insurance association, providing cover for its shipowner and charterer members against third party liabilities arising out of the use and operation of ships. Each Club is owned by its shipowner and charterer members, and its operations and activities are overseen by a board of directors, or committee, elected from the membership.
“P&I is a mutual insurance association. Now, setting up a mutual is something we have to look at. With the current size of the Indian fleet and where we are going in future, that becomes an important ingredient for setting up an insurance, I won’t say a mutual but an insurance hub in India,” NorthStandard’s Mehta stated while speaking at the Global Maritime India Summit on 19 October.
NorthStandard is one of the largest P&I Clubs in the International Group, insuring some 350 million gross tonnage globally across all sectors or 20 percent of the IG Club’s total.
P&I Clubs are financially regulated and rated by Standard & Poor.
The 12 IG Clubs compete for business from ship owners around the world but come together to share the largest claims – those above $10 million per incident, per vessel, said Nick Shaw, Chief executive Officer, International Group of P&I Clubs.
Between the Clubs, they share up to $100 million. Further, they place the largest reinsurance contract in the world with 70 global re-insurers for cover up to $3.1 billion on any claim, Shaw said.
The 12 IG Clubs collectively deal with big claims exceeding $5 billion.
“Sharing of large maritime claims is the main purpose of the IG Clubs,” he added.
“It’s a great idea, but it will not happen overnight and whether it will succeed at all is a moot question,” said a spokesman for an Indian shipping company.
“With a handful of Indian fleet owners, it will just not be in a position to take off unless it gets the support of the international market,” he added.
The setting up of an Indian P&I entity does not require financial support from the government, says a former finance director at one of India’s large shipping companies.
“The proposed P&I Club, however, should be worthy of attracting global re-insurers,” he said.
For a start, industry experts say that there must be a mandate for Indian tonnage to be covered by the Indian P&I entity similar to the requirement that all Indian ships must be mandatorily classed with the Indian Register of Shipping (IRS), one of the world’s twelve agencies that certifies ships for sea worthiness. This mandate is in addition to the requirement for Indian flagged ships to be classed with one of the global classification societies.
Initially, this requirement can be mandated for inland vessels, port crafts and small coasting vessels. After gaining some experience, the mandate for India P&I cover can be extended to bigger ships, said a former official at the Directorate General of Shipping.
“The Indian P&I Club can be an additional P&I cover focussed on ships calling Indian ports,” says Amit Oza, Director, Astramar Shipping & Trading Services. “This cover can be procured on a voluntary basis by ships calling Indian ports for a small charge and can supplement the primary cover. The Club can offer India specific services for a nominal charge and be funded by any of the large insurance companies. As the Club develops in size and expertise, it will hopefully be acceptable to global trade during difficult times when primary cover of the vessel is replaced by the Indian P&I club,” he added.
Further, there are many insurers in the market who are now offering fixed premium P&I cover and they are not “mutuals”, Oza said, noting that the key is expertise, acceptability and balance sheet.
To be sure, India had previously attempted to set up a P&I cover after the sanctions imposed by the United States on Iran in 2012 plunged countries such as India into uncertainty over oil purchases from the Persian Gulf nation, then India’s third-largest supplier, particularly on getting P&I cover for ships hauling Iranian crude.
In 2018, State-run New India Assurance Co ventured into the marine insurance business by offering a fixed premium P&I cover to Indian registered vessels that ply only on local routes, taking the first few steps with the aim of breaking into a segment dominated by European underwriters.
New India Assurance offered the maiden cover to two Type 2 river sea vessels run by Mumbai-based SVS Marine after it was approved by the sector regulator, the Insurance Regulatory and Development Authority of India (IRDAI).
The idea for the New India Assurance P&I cover was given by shipping veteran Capt J C Anand who ran the Indian Register of Shipping (IRS) for many years and was instrumental in the Indian ship classification society gaining full member status at the International Association of Classification Societies (IACS).
Anand and Capt S P Rao, Chairman, SVS Marine, floated a Section 8 entity called The Maritime Protection & Indemnity Association of India (MPIAI) with the motto of starting an Indian P&I.
“Since we didn’t have the financial muscle, we approached all the four State-run insurers; but only New India Assurance came forward to launch a product,” Rao told this reporter some time in 2018.
The New India Assurance cover had a limit of $5 million per vessel, which could be stretched by another $10 million with re-insurance support.
However, efforts to set up a full-fledged P&I cover for ocean-going ships engaged in international trade by cashing in on the “good beginning” made by New India Assurance, didn’t yield results.
“Unfortunately, it didn’t go beyond discussions,” said Sanjiv Singh, Head, Marine, Aviation and Speciality at the General Insurance Council.
Singh, who was a deputy general manager at New India Assurance, when the marine cover was launched said, “The shipping community and the regulator should encourage local P&I insurer by stopping purchase of P&I cover from international markets for coastal vessels and the D G Shipping should include Indian company in their list of approved P&I insurers”.
“That is the minimum that can be easily done to promote Indian P&I today,” Singh added.
