To reduce the insurance cost of Indian ship-owners, the Centre plans to get the four public sector general insurers to float a new joint venture. The venture will exclusively provide cover to ships operating in Indian and South Asian waters.

The Shipping Ministry is spearheading the move to set up the company. A draft plan has been prepared and is being vetted by various ministries. The proposed company will be launched in the next fiscal year by the four PSU general insurers (New India Assurance, United India Insurance, National Insurance Company, and Oriental Insurance Company), said a senior Shipping Ministry official.

The move is in keeping with the government’s ‘Make in India’ campaign. It will save precious foreign exchange that shipping companies pay to get insurance cover from overseas insurers.

Crucial insurance covers such as Protection and Indemnity (P&I) will be offered to shipping companies by the Indian insurer at premiums that will be much lower than current global averages.

P&I is a third-party-liability insurance for ship owners, operators and companies that charter ships. The insurance covers their legal liability in the event of a crew member getting injured or dying in an accident. It also covers collision, wreck removal, marine pollution, stowaways, cargo damage and fines levied by foreign governments or port authorities.

The genesis The official told BusinessLine that Indian shipping companies spend huge sums (in foreign currency) on buying insurance cover, especially under P&I. When the ‘Make in India’ ideation happened in the ministry, the outgo of foreign exchange was also discussed.

If Indian companies can insure domestic satellites, then why can’t they do the same for ships, the official said.

The official pointed out that public sector oil marketing companies collectively pay about ₹590 crore as demurrage charges every year. This is for the delays in evacuating crude oil from tankers in Indian waters. These charges could be handled by the Indian insurance company.

Globally, P&I insurance requirements are handled through a P&I Club and not an insurance company. This arrangement has been in vogue since the 1870s.

If a ship-owner or a charterer requires P&I insurance for a ship, he contacts a P&I Club. In such a club, members contribute to the club’s common risk pool according to the Pooling Agreement rules. The insurance cover is offered from the common pool.

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