Insurers wary, shippers may cut Iran play

Oil imports from Iran may be severely affected post this month as the European reinsurers are unwilling to insure the ships plying the trade following international sanctions against that country.

The protection and indemnity (P&I) contract, which provides insurance cover for third-party liability including pollution, oil pollution, wreck removal and damage to port property, is up for renewal on July 1 by the European firms.

While Indian insurers are willing to insure the ships they do not have the financial capacity, sources said, adding that a final call would have to be taken by the European reinsurers which may not take up the contracts.

Most shipping officials said companies will not be willing to operate on this route without an adequate insurance cover, thus affecting imports.

Public-sector insurance companies and the domestic reinsurer General Insurance Corporation-Re (GIC- Re) are working to provide a P&I cover of $50 million per ship.

“However, the market need to cover vessels carrying Iranian crude oil is around $120 million. The promised cover of $50 million is well below the required one,” said a senior official from the general insurance industry.

About six to seven Indian services ply on this route. India aims to cut imports of Iranian crude by 11% to 15.5 million tonne in 2012-13. GE Shipping, India Steamships, Shipping Corporation of India and Mercator Ltd are Indian companies operating on this route.

“What GIC-Re is offering to the Indian shipping companies is very low than the cover that typically shipping companies go for. Discussions on the size of the cover are still on between GIC-Re and the other insurers,” said a shipping company official.

Traditionally, International Group of Protection and Indemnity Clubs (IG Club), a 13-member group based in London, extends the third-party P&I cover for almost all ocean-going ships, but following the nuclear sanctions against Iran by the European Union, the group has been hardening its stance.

For the Indian PSU insurers to extend P&I cover for ships on the India-Iran route, the major player GIC-Re will have to provide reinsurance. GIC-Re will, in turn, have to tie up with Europe-based reinsurers for ceding its own risk.

“GIC Re will find it difficult to go ahead with the promised cover as European re insurers may refrain from reinsuring these contracts,” said an insurance industry official.

Indian shipping companies are also facing the heat on the maintenance and hull (M&H) cover, which is provided by Indian insurers but reinsured by the European companies.

A top shipping industry official said, “The only way out is GIC stepping in or the government offering a sovereign guarantee. What we understand is the government is keen to ensure the imports continue. In the absence of this, imports would come to a standstill.”

The official said the companies will look at operating these vessels on other routes if the desired insurance does not fall in place.