The Indian government has announced ‘Bharat Maritime Insurance Pool’ (BMI Pool), a Rs 12,980 crore national maritime insurance fund to support sovereign guarantee and provide comprehensive coverage for hull and machinery, cargo, protection and indemnity (P&I) for the Indian-flagged and Indian-controlled vessels. The BMI Pool is meant for Indian flagged and Indian controlled vessels during wars, when operating in conflict-prone international waters, encountering geopolitical tensions, sanctions as well as sailing through areas marked by asymmetric threats and challenges such as piracy and terrorism. Significantly, the BMI Pool will reduce dependence on foreign underwriters and ensure uninterrupted risk coverage for Indian shipping.

Although the need for a national maritime insurance fund has been on the agenda for a long time, it is the ongoing US-Israel and Iran war and the high rates of insurances imposed by western underwriters on shipping operating in and around the Persia Gulf as well as the Red Sea have triggered the need to announce the Pool.

Since the commencement of hostilities between US-Israel and Iran, Indian flagged ships have transited through the Strait of Hormuz carry vital energy resources from the Persian Gulf and the Red Sea. The All India Seafarer Union (AISU) has expressed concern over the continuing attacks on merchant ships, sea mine threat, and unsafe navigation conditions resulting in persistent risks faced by seafarers transiting the Persian Gulf and the Red Sea. It has proposed “comprehensive war-risk compensation framework that includes allowances, insurance coverage, and compensation for seafarers in conflict-affected waters” and called on the government called on the government to address “long-term welfare” of the Indian seafarers amid these escalating risks.

International shipping transiting through the Strait of Hormuz has attracted Additional War Risk Premium for tankers across the Persian Gulf. For instance, premiums rose “from 1–1.5% range, with extreme cases reaching 3–7.5%” and “tankers valued between $200 million and $300 million entailed the new insurance rate of “3% would imply a hull war risk premium of about $7.5 million, up from around 0.25%, or $625,000, before the conflict began”.

It is well known that shipping is highly sensitive to any form of disruption arising from political-economic-security-environmental-ecological incidents and events. Even low-end ‘risks’ in certain geographical areas can attract high insurance covers. Consequently, these risks must be identified and addressed through underwriting. Like any other enterprise, risks arising in the business of sea trade must be covered against “financial losses resulting from accidents, theft, natural disasters, and other perils that may occur during transit”. This is called “marine insurance” and helps to protect businesses and individuals involved in maritime activities including “legal liabilities arising from accidents, injuries, or damages caused to third parties, including passengers, cargo owners, and other vessels”. 

High premiums to cover risks are not just for shipping, even airports and sea ports can attract War Risks. In the case of Sri Lanka, the LLTE attack on the Katunayake International Air Port on the 30th of July 2001, the UK based War Risk Rating Committee “placed Sri Lanka under held cover”. Similarly, shipping lines calling at the Colombo Port had to pay additional premiums to make port calls.

In the Indian context, in 2010 the War Risk Committee had announced Piracy High Risk Area (HRA) that covered areas close to India’s west coast (65° East longitude to 78° East longitude) attracting higher premium for ships heading to Indian ports. It took concerted diplomatic efforts and security measures by the Indian Navy and the Indian Coast Guard through counter-piracy operations to remove the HRA premiums.

Iran’s deceleration “Hormuz is closed” demanding shipping companies pay a ‘fee’ amounting to US $ 200,000 or “Hormuz is Open” albeit for a few “friendly” countries, has challenged the international regime of freedom of navigation through international straits. The above announcements-demands by Iran have added additional financial burden of the shipping companies in terms of insurances for the men-material-machinery-cargo carried onboard a vessel that has chosen to transit through the Strait of Hormuz.

In this context there are several advantages of the BMI Pool and it is not surprising that Union Sarbananda Sonowal, the Minister of Ports, Shipping and Waterways (MoPSW), has labelled it as a “landmark decision” as also a “transformational step” that would add to India’s “sovereign capacity to safeguard its maritime trade, even in the most challenging global scenarios.”

Dr.Dr. Vijay Sakhuja is associated with the Kalinga International Foundation, New Delhi.