India Plans Sovereign Guarantees for Insurers as Iran War Hikes Shipping Risks: Sources
India is planning sovereign guarantees to support insurers that provide cover for vessels traveling in the Persian Gulf, as the Middle East war increases the risks to shipping, said government and industry sources familiar with the matter.
A separate $300 million fund with contributions from the country’s insurance industry is also being set up to help settle any large increase in insurance claims, the same source said.
Maritime war risk insurance premiums have surged as much as 1,000% in some cases, as the Middle East conflict heightens risks to shipping through the region. The spike in premiums has sharply raised costs for shipowners, traders and energy firms moving cargo through the route.
Three insurance industry sources said India’s insurance regulator recently sought feedback from industry players on the nature of support needed and on how to implement the funding.
The guarantee funds could reduce India’s dependence on overseas reinsurance and give insurance companies the comfort they need to continue providing cover as trade flows resume through the region, they said.
The sources declined to be identified as they were not authorized to speak to the media. India’s finance ministry and insurance regulator did not immediately respond to requests for comment.
Insurers Have Hiked Premiums
Maritime insurance covers ships and cargo against risks such as accidents, piracy and conflict. War-risk cover is typically excluded from standard policies and must be bought separately, with vessels sailing through conflict zones paying sharply higherrates.
The Middle East conflict began on February 28 when the U.S. and Israel launched attacks on Iran. Tehran has since closed the Strait of Hormuz and struck sites in other countries in the region.
“While war insurance cover is available, varied rates are being charged by insurers, which are significantly elevated and are dynamic in nature,” said Gaurav Agarwal, head of marine specialties, Prudent Insurance Brokers.
Insurers have also expanded the definition of “risky zones” beyond the Strait of Hormuz to include parts of the Red Sea, Gulf of Aden, and the Arabian Sea approaches, said Rajesh Kumar Singh, executive president of property at Howden India, an insurance broker.
Several major reinsurers including India’s only state-backed reinsurer GIC Re have either withdrawn cover or sharply raised premiums, leaving the industry with limited reinsurance support, the three industry executives said. GIC Re did not immediately respond to a request for comment.
A sovereign-backed Indian pool could help give insurers confidence and reduce costs to ship goods via the Persian Gulf region, one of the sources, a senior insurance executive, said.
Even if the Strait of Hormuz reopens, insurers expect war-risk pricing to remain elevated for an extended period, reflecting the heightened security risks and concerns of renewed disruptions, he said.
($1 = 92.9700 Indian rupees)
(Reporting by Nikunj Ohri in New Delhi and Ashwin Manikandan in Mumbai; editing by Kate Mayberry)
Related: