The special insurance pool arrangement by the Government meant to provide cover for domestic refineries processing crude oil imported from Iran is likely to be a non-starter. This follows the six-month waiver on sanctions imposed on Iran for its nuclear activities, following which global reinsurers could begin providing cover to Iran’s oil trade.
The Government had envisaged setting up a Rs 2,000-crore energy insurance pool, with General Insurance Corporation as its manager, and contributions from state-owned insurance companies and oil refineries.
Speaking to
At present, Indian general insurers provide cover to oil refiners and then re-insure the risk with global re-insurers. But with Iran under US/EU sanctions, global re-insurers provide cover with a “sanction clause” that limits the payout in case of a claim.
“Currently, most of our reinsurance treaties are with European re-insurers. While they have been saying that sanctions on Iran will be removed, we are waiting for an official declaration from them,” said a senior official from a public sector general insurance company.
The setting up of the proposed energy pool has also been plagued by other issues. While the Finance Ministry has been asking for upfront payment of an initial tranche of Rs 500 crore from the Petroleum Ministry to set up the pool, the Oil Industry Development Board (a subsidiary of the Petroleum Ministry) has been asking them to go ahead with a bank guarantee.
The other big hurdle to the pool is the size of the insurance cover, which is limited to Rs 2,000 crore, which the domestic refiners feel is insufficient.