State-run New India Assurance Co has ventured into the ship insurance business by offering the protection and indemnity (P&I) cover to Indian registered vessels that ply only on local routes, taking the first few steps with the aim of breaking into a segment now dominated by European underwriters.
New India Assurance has offered the maiden cover to two Type 2 river sea vessels run by Mumbai-based SVS Marine after it was approved by the sector regulator, the Insurance Regulatory and Development Authority of India (IRDAI).
“This is the beginning of P&I insurance in India,” said Capt SP Rao, Chairman of SVS Marine.
Coverage details: The New India Assurance cover has a limit of $5 million per vessel. “With re-insurance support, we can stretch it by another $10 million,” Sanjiv Singh, a deputy general manager at New India Assurance said, adding that the cover is being issued only to coastal ships to start with.
That is still a pittance compared to the P&I cover issued by London-based International Group of P&I Clubs, a 13-member group which insures close to 90 per cent of the world’s merchant ships, placing a $1-billion limit on individual claims that involve pollution damage and wreck removal.
Yet, the timing of the launch of India’s first P&I cover is significant.
US sanctions: The withdrawal of United States from the nuclear accord with Iran and the reinstatement of sanctions on the Persian Gulf nation has plunged countries such as India into uncertainty over oil purchases from Iran, India’s third-largest supplier, particularly on getting P&I cover for ships hauling Iranian crude.
“Depending on the demand and product committee’s review, probably we can offer the P&I cover to ships transporting Iranian crude. But, not right now. We will have to file a separate product and take the approval of IRDA for that, which will be more of an amendment to the existing product,” Singh at New India Assurance said.
Why P&I?: This cover will come in handy in case of an emergency in Iran, said Rao at SVS Marine recalling that the earlier Western sanctions on Iran had forced the government to think of an Indian P&I cover. With European insurers backing off from giving cover to ships bringing Iranian crude due to the sanctions, India had to formulate an emergency third-party liability cover of $50 million per shipment through state-run United India Insurance Co.
United India Insurance also offered an additional $50-million cover on hull and machinery to protect the ships against physical damage. Indian shipowners, though, did not take the cover offered by United India because it was considered “inadequate”.
“We have suggested to New India Assurance not to cover ocean-going ships for the time being. Let them first settle down by covering coastal ships for three-four years, gain experience and then get into ocean-going vessels. Because, in case of a pollution incident in the US, the liability is unlimited. Japan took 23 years to settle down. Now, they are a member of the IG Clubs,” Rao said.
The idea for the New India Assurance P&I cover was given by shipping veteran Capt JC Anand who ran the Indian Register of Shipping (IRS) for many years and was instrumental in the Indian ship classification society gaining full member status at the International Association of Classification Societies (IACS).
Anand and Rao floated a Section 8 entity called The Maritime Protection & Indemnity Association of India (MPIAI) with the motto of starting an Indian P&I. “Since we didn’t have the financial muscle, we approached all the four State-run insurers; but only New India Assurance came forward to launch a product. We will give them technical and claims support,” Rao added.