The Indian government is planning to set up a fund dedicated to supporting insurers providing war-risk cover for ships to and from the country which are travelling through conflict-hit waters in West Asia, according to a report by the Economic Times of India, citing people familiar with discussions.
The Middle East conflict, as we’ve reported previously, has led to disruption to vital trade flows, with global reinsurers cancelling covers at short notice or rewriting at much higher rates, resulting in premiums for maritime war covers for vessels transiting the Strait of Hormuz being volatile but increasing as much as 20 times the norms of 0.25% of vessels’ insured value.
According to the Economic Times of India, the country’s Finance Ministry is currently evaluating the proposal, which would enable domestic insurers to extend coverage to vessels sailing through high-risk zones such as the Strait of Hormuz, while being backed by government reinsurance.
A government official told the publication, “We are examining if a fund can be created, as reinsurance is not available in the region. It would be a kind of backstop facility, stepping into supplement insurers’ ability to get reinsurance when global reinsurers are staying away.”
The report states that the facility could be similar to the Marine Cargo Excluded Territories Pool established in 2022 due to the Russia-Ukraine war and related sanctions. This pool is managed by state-run General Insurance Corporation of India (GIC Re), and provides cover for marine cargo shipments of fertilisers and other commodities from “excluded territories”.
Public disclosures show that these risks are currently not covered by global insurers due to war and international sanctions. This pool had 21 members and a capacity of ₹484 crore per shipment.
Under the existing framework, GIC Re, along with the underwriting committee, approves coverage of new commodities as needed. The reinsurer holds the largest capacity share at 51.6% and earns a 2.5% management commission on the original gross premium, net of obligatory cessions.
The government official also told the Economic Times of India that several options are being examined, and that the setup of such a facility would be feasible only after the route through the Strait of Hormuz opens up. A final call on the structure, size and where it would be housed would be taken accordingly, according to people familiar with the matter.
The person also told the publication that the possibility of the latest facility covering crude oil shipments passing through the Strait of Hormuz, apart from other cargo, was being debated. “This is being discussed so as to ensure the continuity of cover for India-bound cargo, as most global insurers have withdrawn the cover,” the official told ET.
Additionally, Rajesh Kumar Sinha, India’s Special Secretary in the Shipping Ministry, speaking during an inter-ministerial briefing, said that war risk insurance premiums for ships have increased amid evolving security concerns in sensitive maritime regions.
He commented, “The additional war risk premium is being imposed now. Under normal circumstances, it is very low–around 0.01 per cent or 0.02 per cent. The premium increases depending on the risk exposure of a vessel’s route, particularly when entering conflict zones. If a ship enters a war zone, is on a voyage through such an area, or enters any high-risk region, the war risk premium increases.”
