India Explores Specialized Fund to Support War-Risk Insurance for Ships Amid Middle East Tensions
The escalating conflict in the Middle East, particularly involving Israel, Iran, and the United States, is prompting the Indian government to consider innovative financial measures to safeguard maritime trade. With disruptions in West Asian waters unsettling global trade movements, the finance ministry is reviewing a proposal to create a specialized fund aimed at assisting domestic insurers in offering war-risk coverage for ships operating on routes to and from India.
Addressing Insurance Gaps in High-Risk Waters
As global reinsurers withdraw from the region due to heightened risks, cargo transport has become both more expensive and harder to insure. Under the proposed plan, this fund would act as a government-backed reinsurance mechanism, designed to absorb potential losses and enable insurers to provide cover for vessels navigating perilous areas such as the Strait of Hormuz. A government official stated, "We are examining if a fund can be created as reinsurance is not available in the region." This arrangement would serve as a critical backstop, helping secure reinsurance support at a time when international players are avoiding the conflict zone.
Modeled on Previous Initiatives
The structure under consideration could mirror the Marine Cargo Excluded Territories Pool, which was introduced in 2022 following the Russia-Ukraine conflict and related sanctions. Overseen by the state-run General Insurance Corporation of India (GIC Re), this pool provides insurance coverage for marine cargo shipments, such as fertilisers, from designated "excluded territories" like Belarus, Ukraine, and Russia. Typically excluded by global insurers due to war-related risks and sanctions, this pool involves 21 members and offers a capacity of ₹484 crore per shipment.
- GIC Re, as the pool manager, collaborates with an underwriting committee to approve coverage for additional commodities when needed.
- It holds the largest share of capacity at 51.6% and receives a 2.5% management commission on the original gross premium after adjusting for obligatory cessions.
Potential Scope and Implementation
According to sources, the proposed fund could have an estimated corpus of around ₹1,000 crore and be housed within state-run insurers led by GIC Re. It may extend coverage not only to general cargo but also to crude oil shipments moving through the Strait of Hormuz. An industry insider noted, "This is being discussed so as to ensure the continuity of cover for India-bound cargo, as most global insurers have withdrawn the cover." However, any final decision on establishing such a facility is likely to be deferred until the Strait of Hormuz route reopens, with its structure, size, and institutional placement dependent on ongoing developments.
Industry Advocacy and Broader Implications
Industry stakeholders, including exporters and shipping companies, have long advocated for such a facility to mitigate risks and maintain trade flows. The move reflects India's proactive approach to navigating geopolitical uncertainties, ensuring that its maritime trade remains resilient amid global conflicts. As tensions persist, this initiative could play a pivotal role in stabilizing insurance markets and supporting economic interests in the region.
