The International Financial Services Centres Authority (IFSCA) has asked the Finance Ministry to issue a notification under the Insurance Act for enabling mutual insurance in a move that will pave the way for setting up maritime Protection and Indemnity (P&I) insurance in the Gujarat International Finance Tec-City (GIFT City), IFSCA Chairman K Rajaraman has said.
“Insurance and risk mitigation bottlenecks are very important for a developing country like India. We need to look at how we can create our own P&I Club in India and we are working with the Department of Financial Services and expect approval for mutual insurance in
IFSCA,” Rajaraman said on October 27 on the sidelines of the India Maritime Week held in Mumbai.
Rajaraman said that he met the Secretary, Department of Financial Services, in October and discussed the need to “issue a notification under the insurance act for enabling mutual insurance”.
“To create a P&I Club, it is necessary. Once mutual insurance is enabled, I can allow a P&I Club in the GIFT City. We need the enablement so that we can frame regulations,” Rajaraman added.
The move comes two years after Finance Minister Nirmala Sitharaman flagged off the need for establishing a full-fledged, India-owned and based P&I entity despite industry scepticism over the plan given India’s miniscule tonnage.
Reducing vulnerability
A local P&I entity, according to Sitharaman, “would reduce India’s vulnerability to international sanctions and pressures to provide greater strategic flexibility in shipping operations”. Besides, it “would also provide a foothold into the specialised segments of P&I business which is currently dominated by very few players internationally where presently India doesn’t have a presence,” she said on October 19, 2023, at the Global Maritime
India Summit held in Mumbai.
In shipping, third-party liabilities arising from operating ships such as oil pollution, wreck removal and damage to port property are commonly referred to as protection and indemnity (P&I) insurance.
Globally, such third-party risks are insured with the International Group of Protection and Indemnity Clubs (IG Clubs), a 12-member group based in London that provides liability cover to about 90 per cent of the world’s ocean-going ships by capacity (tonnage), placing a $3.1-billion limit on individual claims that involve pollution damage and wreck removal.
Each Group Club is an independent, not-for-profit mutual insurance association, providing cover for its shipowner and charterer members against third party liabilities arising out of the use and operation of ships. Each Club is owned by its shipowner and charterer members, and its operations and activities are overseen by a board of directors, or committee, elected from the membership.
The 12 IG Clubs compete for business from shipowners around the world but come together to share the largest claims – those above $10 million per incident, per vessel.
Between the Clubs, they share up to $100 million. Further, they place the largest re-insurance contract in the world with 70 global re-insurers for cover up to $3.1 billion on any claim. The 12 IG Clubs collectively deal with big claims exceeding $5 billion.
Strategic significance
Setting up a local P&I Club holds strategic significance to strengthen India’s maritime and legal infrastructure, a government official said.
Marine insurance accounts for merely 2 per cent of the total non-life insurance segment in India (as of FY18), a low figure for a country with over 1,500 vessels in its national fleet. India contributes just 0.8 per cent to global shipping tonnage yet pays nearly $15 million annually in premiums to foreign P&I clubs, he said, underscoring the need for domestic risk retention and financial autonomy. Non-IG P&I Clubs now cover 40 per cent of the global fleet, reflecting a shift beyond traditional IG Clubs, he added.
By seeking a notification from the government for enabling mutual insurance under the insurance law, IFSCA is looking to tap the tax-free enclave’s rising popularity among the marine industry to create a P&I Club.
IFSCA’s move comes in the backdrop of an attempt by the Directorate General of Shipping to undertake a comprehensive study on the viability of setting up a P&I entity on a mutual or fixed premium basis based in India.
India’s maritime administration has hired ACE Insurance Brokers Pvt Ltd, an Insurance Regulatory and Development Authority of India (IRDAI)-registered entity, to carry out the feasibility study.
The consultant has been tasked with assessing the global P&I insurance market, including the International Group of P&I Clubs or IG Clubs, to identify trends, key players, and market dynamics.
The scope of work covers review of non-IG entities to study their fixed premium concept.
The International Group of P&I Clubs, though, is not sure whether India is on the right course with its plan to float a local P&I entity.
“There is nothing to stop a new P&I Club forming, but it’s just that there is no reason to build a new Club unless you have sufficient tonnage to take care of,” Nick Shaw, Chief Executive Officer of the International Group of P&I Clubs, told ETInfra in an interview in Mumbai on August 11.
“Unless the Indian fleet grows massively, I don’t see it’s going to be of that much interest to the Indian government to put so much money on the table and build up the capital reserves to persuade the Indian ship owners to say that this is a better offering than the existing International Group of P&I Clubs (IG Clubs) where they can be board members anyway,” he said.
“Ultimately, a P&I Club is a collection of mutual ship owners, and there are fixed premium versions of P&I Clubs as well. A lot of Clubs will start off as fixed premium and then try and move to mutuality. The mutual system is the best; it’s not for profit, and ship owners get a great service through it because most of the Clubs have got over 120 years of expertise built up over a long period of time. To say, ‘let’s go and build an India P&I Club’, you got to think, will Indian shipowners necessarily want to have their own P&I Club when they have the benefit of sharing ideas and expertise with the Clubs they are with at the moment. I don’t know. There is nothing to stop an India P&I Club from forming, it’s just what are the commercial and political reasons for doing so,” he added.
(source: ET Infra)
