It’s come as a body blow to shipping companies.
With underwriters at Lloyd’s — the world’s oldest and leading specialist insurance player — declaring India’s west coast as a ‘war zone’, the ships entering the area will need another insurance cover. For big vessels, the additional premium could be Rs 1.5-7.5 crore for seven days.
In December, the Joint War Committee of Lloyd’s included the Indian Ocean and the Arabian Sea in the "listed area" of its "Hull War, Strikes, Terrorism and Related Perils" sheet.
The additional cover will be over and above the mandatory war-risk cover.
According to the Indian Ports Association website, there are 133 ports on the west coast. These include 53 in Maharashtra and 40 in Gujarat. Two of the four leading ports — Kandla in Gujarat and JNPT in Maharashtra — are on the west coast. The total cargo handled by the top six ports on the west coast was 300 million tonnes in 2010-11. Kandla, Mumbai and JNPT handled 200 million tonnes.
Domestic shipping companies can choose from two war-risk schemes — of General Insurance Corporation (GIC) and Lloyd's. The Lloyd's plan is cheaper and costs around 0.02 per cent of the cost of the vessel. The GIC option costs 0.05 per cent of the cost of the vessel.
"With Lloyd’s deciding to name the west cost as a war-risk zone, vessels entering the area will have to pay an additional cover up to 0.01-0.05 per cent of the value of the vessel for seven days," said a re-insurance broker.
This means a vessel valued at Rs 100 crore will have to pay an additional premium of Rs 1-5 lakh for seven days.
According to industry experts, ocean-bound vessels cost between Rs 30 crore and Rs 1,500 crore.
“The extra charge will not be for vessels that take the GIC scheme. However, most opt for the Lloyd’s scheme, as it is cheaper,” said the broker.
A vessel also takes cover for the cargo and hull. The premium in this case is calculated on the basis of the vessel’s tonnage and value.
“This is huge and makes cargo movement an expensive affair,” said an analyst with a domestic research company which tracks the shipping sector. This year, premiums under the marine treaty have risen by 5-7 per cent on an average.
Anil Devli, chief executive, Indian National Shipowners’ Association (Insa), told Business Standard, “We have a conference of the International Maritime Organisation in May in London. We will lobby with the underwriters in London to get at least the Indian part of the sea removed from the zone. It is like having a bad mark against your name.”
Insa has support from the shipping ministry. The director general, shipping ministry, will go with the INSA chief to meet the underwriters.
Shipping Secretary K Mohandas said, “We have to get ourselves removed from the ‘war-risk zone’ list. The ministry will play a supporting role. The primary role will be played by the shipping companies, led by Insa .”
In the past few months, there has been just one case of hijacking on the west coast, and that is why the ministry feels it has a strong case. “They (Lloyd’s underwriters) review decisions periodically and are meeting in the second week of May. They will probably review their decision then,” he said.
“Ever since the underwriters declared this, the Indian Navy has became active. In the past two months, we haven’t had any hijacking in this region. Therefore, we have a case and can tell the ‘war-risk’ committee that for 60 days there hasn’t been any incident,” said Insa’s Devli.
