Crossing the insurance hurdle

With the European Union ban on providing insurance to tankers carrying Iranian oil taking effect from July 1, there is renewed talk of setting up an Indian Protection and Indemnity (P&I) Club. For the last few months, ship-owners in India, and even in other countries, have been seeking alternatives to the Europe-based P&I Clubs. The latter, bound by the diktat preventing EU insurers and reinsurers from covering tankers transporting Iranian crude, are yet to heed the Indian industry's request for exemption from the ban. It has, therefore, revived interest in establishing an India-based insurance facility to protect domestic ship-owners from being at the complete mercy of foreign insurers. How practical is the proposal – mooted in the past too – is a moot point, though.

A P&I Club is basically a mutual non-profit insurance association that provides cover to its members — ship-owners or charterers — by pooling their resources to meet each others' third-party liability losses. These include the member's responsibility to cargo-owners in the event of damage or claims arising from his ship's collision, causing environmental pollution, etc. There are 13 such Clubs – one American, one Japanese, and the rest European – that between them provide liability cover to 90 per cent of the world's ocean-going fleet, including that of India. Theoretically, nothing stops Indian ship-owners from forming an association for mutual benefit. But whether that Club can bear individual member's losses from third-party claims anywhere in the world is another matter. A single large oil spill event can, indeed, wipe out the corpus of a new Club in no time. The big P&I Clubs — some of which are in existence for over 100 years, with a network of correspondents in all major port centers — offer up to $1 billion cover to individual ships of members. Financial strength apart, they operate on trust and credibility gained over time, making the ships insured by them accepted at ports across the world.

Indian ship-owners, by contrast, have a combined 10 million gross registered tonnage that is just one per cent of the global capacity. They also handle barely a tenth of the country's own total export and import cargo. That is hardly enough to form a mutual P&I Club. Nor is it easy to co-opt ship-owners from other countries; to build that kind of acceptability to attract foreign flag carriers takes time. The votaries of an Indian Club should first work towards substantially increasing the national tonnage. The current low international rates for vessels provide ample scope to expand their fleets. The Government, on its part, can encourage the formation of an Indian P&I Club by involving its own insurance companies at least in respect of ships bringing crude from Iran. The Indian Club can start with providing partial third-party liability cover for other cargo — a business that could well grow over time.

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