War risk regulation hits marine insurers

Private sector insurance companies are losing out to their public sector counterparts when it comes to marine insurance.

The state insurance companies "" The New India Assurance Company, National Insurance Company, United India Insurance Company and Oriental Insurance Company "" dominate the Rs 300 crore market, as Indian flag carriers continue to favour them to underwrite marine hull insurance.

This is because only the state-owned general insurance companies are allowed to offer war-risk covers, leaving their private sector peers out in the cold.

This is a fall out of the Scheme of War Risks Insurance of Marine Hulls, 1976, which permits only public sector insurance firms to offer this cover in the Indian market.

Also, no Indian flag carrier is allowed to avail of the cover from the overseas market.

The inability of private sector players to underwrite this cover is reflected in their share of the Rs 300 crore shipping premium business, wherein the leading private insurer "" ICICI Lombard General Insurance "" has garnered just Rs 22 crore business.

Many public sector undertakings including the Shipping Corporation of India (SCI) continue to place business only with state-owned insurance companies, insurance company officials said.

SCI pays the largest premium among Indian shipping companies. It has over 100 vessels, accounting for around 40 per cent of the national fleet.

"Our inability to write war risk cover is a handicap as we cannot write more business," said ICICI Lombard chief executive officer Sandeep Bakhshi.

Most Indian ships chartering international waters take war risk cover even in times of peace.

The entry of private insurance companies in the war-risk insurance market will act as a boon for shipping companies as they can avail of cheaper war risk cover from the international market.

Pricing of the Indian war risk cover for hull and machinery as well as personal and indemnity (P&I) risks currently costs 0.08 per cent on the market value of the ship.

Internationally, the premium cost works out much cheaper, as low as half the cost.

Currently war risk cover falls under the tariff regime whereby the premium is fixed.

"There is an urgent need to detariff this segment of the insurance sector, as it will allow us ship owners to buy the cover from the international market," said a senior executive with a large shipping company.

It is possible to reduce the cost of coverage considering that over the last 50 years the return on the retained premium of the Indian government exceeds the annual premium received from the entire shipping industry.

This is in spite of payments made towards claims. Recommendations have been made following a government study on the war risk premium market, that ship owners be allowed to place their war risk cover outside India in order to benefit from lower premium charges overseas.

Further, the P&I cover in India "" which includes liabilities for loss of life, personal injury, wreck removal and collision "" is restricted to Rs 10 crore.

However, internationally the cover is equivalent to the market value of the vessel.