The Hindu Business Line : Expert group for revamped war-risk cover for flag ships

THE war-risk insurance for Indian flag ships may be liberalised if the Government accepts a key recommendation made by an expert group to grant freedom to Indian ship owners to place their war-risk cover in overseas markets and also to allow private insurance companies operating in India to administer the war-risk scheme run by the Government.

Currently, Indian ship owners have to insure their war-risk compulsorily with the Government through the scheme of War-Risk Insurance on Marine Hulls (1976). Though, this cover is provided by the Government directly to the ship owner, the scheme is administered only by the public sector insurance companies. The premium collected is credited to the Government and the claims, if any, is paid by the Central Government.

Calling for a continuation of the war-risk insurance scheme operated by the Government, the export group, however, said that the existing scheme has become outdated and should be reviewed and modified to bring it in line with the international market.

``This should be a totally voluntary scheme and Indian owners must be given the option of placing their war-risk insurance outside India since this will be a cheaper option and will put him on par with international ship owners. There should be no compulsion that Indian flagships necessarily have to be covered only by the war risk scheme of the Government. Besides, with private insurance companies doing business in India, there is no reason as to why only nationalised insurance companies should be allowed to administer the scheme", the expert group comprising officials from the Shipping Ministry and industry representatives has said in its report finalised recently.

Besides, the premium to be paid by the Indian owners on the Government war risk scheme should be revised downwards keeping in mind the surplus already built up and the inherent low risk attached to the scheme. "Such low premium for war risk cover should be held firm even during war/war-like situations. In case of increase in premium amount due to extreme high risk war environment, the ship owners have to be notified in advance and any additional premium levied has to be withdrawn immediately upon cessation of war conditions", the group has suggested.

The war risk insurance cover provided under the scheme is a peacetime war-risk cover which applies only when there is no war. In the event of a war being declared, then the under writer (Government) reserves a right to cancel the cover by giving 14 days notice and to re-instate the cover by charging an additional premium which is normally levied for a limited period.

The Government is currently charging a premium of 0.08 per cent per annum on the market value of the ship by way of war risk (peace-time war risk). Even this is considered to be on the higher side as peacetime war risk coverage is available in the London market at possibly 20 per cent of the premium charged by the Government.

In the case of the war-risk insurance scheme run by the Government, not more than four claims have been made on the Government on account of war risk in the last 50 years. ``It is believed that the insurance premium collected by the Government even after deducting the losses paid by them are such that the interest earned by the Government on the retained premium in the past is higher than the annual premium they receive from the shipping industry,'' the group has noted.

As such, there is a need to examine whether the war-risk cover can be provided free of cost by the Government to the ship owners, citing instances where countries elsewhere have passed on such a benefit to their national tonnage.

The expert group noted that the war-risk cover provided by the Government under the scheme was extremely inadequate as it excluded many risk areas that are normally covered under similar schemes available globally and also suffered from very low financial limit of coverage.