Centre Plans ₹1,000 Crore War-Risk Fund to Protect Ships Amid West Asia Conflict

As the West Asia conflict shows no sign of cooling down, the centre is planning to set up a Rs 1,000 crore fund to support insurers providing war-risk cover for ships to and from India, transiting conflict-hit waters in the region, the Economic Times reported.

India’s merchandise trade with West Asia stands at around $180 billion annually, making it one of the country’s most important regional trade corridors after the European Union. The US-Israel strikes on Iran disrupted economic activities in the region and upended trade flows. Simultaneously, global insurers have also stopped providing cover, which has made moving cargo more costly.

The finance ministry is currently reviewing the proposal which would allow domestic insurers to offer coverage to vessels navigating high-risk waters such as the Strait of Hormuz, with government-backed reinsurance available to absorb potential losses, the report said.

The proposed facility could be modelled on the Marine Cargo Excluded Territories Pool established in 2022 in response to the Russia-Ukraine war and the sanctions that followed, an industry executive told ET. That pool, managed by state-owned General Insurance Corporation of India (GIC Re), provides cover for marine cargo shipments of fertilisers and other commodities originating from excluded territories — namely Belarus, Ukraine and Russia — which global insurers have declined to cover owing to war risks and international sanctions. The pool has 21 members and carries a capacity of ₹484 crore per shipment.

Under the existing arrangement, GIC Re, acting as pool manager alongside an underwriting committee, approves coverage for new commodities as and when required. It holds the largest share of capacity at 51.6% and earns a management commission of 2.5% on the original gross premium, net of obligatory cessions.

State-owned insurers, with GIC Re at the helm, could host the new pool as well, according to another source familiar with the discussions, who added that the corpus of the fund could be in the region of ₹1,000 crore. The facility under discussion may also extend to crude oil shipments passing through the Strait of Hormuz, in addition to other cargo, this person said.

Reportedly, the government has been considering setting up protection and indemnity (P&I) club for shipping lines and vessels for a while now.

The case for an India-focused P&I entity has grown out of the country's desire to reduce its exposure to international sanctions and external pressures — situations where insurance coverage is routinely denied to shipping lines operating routes between sanctioned nations.