The move to set up a locally-owned Protection and Indemnity (P&I) Club – espoused by none other than the Finance Minister Nirmala Sitharaman last year – has lost steam with the Ministry of Ports, Shipping and Waterways now taking a “realistic” view of the plan given the miniscule tonnage operating under the Indian flag.
“Initially, there was a major emphasis on an Indian P&I Club. Now, what’s happening is you have to be realistic. The London-based International Group of Protection & Indemnity Clubs cover around 90 percent of the global tonnage. Indian flag tonnage is just 0.8 percent of the global fleet. So, we are now refining the plan to focus more on coastal shipping,” said an official.
The government, according to the official, is focussing on two major aspects.
“One is providing a fixed premium, low-cost option to coastal ship operators so that their cost of operations come down. The second is establishing a green coastal corridor to help facilitate a gradual transition to greener shipping and ports,” the official added.
In shipping, third-party liabilities arising from operating ships such as oil pollution, wreck removal and damage to port property are commonly referred to as protection and indemnity (P&I) insurance.
Globally, such third-party risks are insured with the International Group of Protection and Indemnity Clubs (IG Clubs), a 12-member group based in London that provides liability cover to about 90 per cent of the world’s ocean-going ships by capacity (tonnage), placing a $3.1-billion limit on individual claims that involve pollution damage and wreck removal.
Each Group Club is an independent, not-for-profit mutual insurance association, providing cover for its shipowner and charterer members against third party liabilities arising out of the use and operation of ships. Each Club is owned by its shipowner and charterer members, and its operations and activities are overseen by a board of directors, or
committee, elected from the membership.
With India owning less than 1 percent of the global tonnage, an Indian P&I cover would need support from the international markets, both from a ship owners’ perspective and from a reinsurance point of view.
The 12 IG Clubs compete for business from ship owners around the world but come together to share the largest claims – those above $10 million per incident, per vessel.
Between the Clubs, they share up to $100 million. Further, they place the largest reinsurance contract in the world with 70 global re-insurers for cover up to $3.1 billion on any claim. The 12 IG Clubs collectively deal with big claims exceeding $5 billion.
The Finance Minister sprang a surprise last year by saying that the time has come to float a local P&I entity.
“A need has been felt to have a full-fledged India owned and India based P&I entity. I would think it is important to have a P&I entity of India’s own ownership,” Nirmala Sitharaman said on 19 October last year, while speaking at the Global Maritime India Summit held in Mumbai.
Explaining what that means to India, she said, “It would reduce India’s vulnerability to international sanctions and pressures to provide greater strategic flexibility in shipping operations”.
“It would also provide a foothold into the specialised segments of P&I business which is currently dominated by very few players internationally where presently India doesn’t have a presence,” she said.
“I would think that it is a very important thing which we need to work on. It would also provide protection of liabilities to ships operating in coastal waters as well as inland waterways during their operations,” Sitharaman added.
The shipping industry, though, was sceptical of the plan due to the miniscule share of Indian flagged ships in global shipping tonnage, with one insurance executive saying that “India should not make a fool of itself in the international market by pursuing the plan”.
“We are going about it the wrong way. India would do well to understand the concept of a P&I Club. It is the ship owners P&I Club, but where are the owners in India,” he said, noting that such entities are not funded by the government but rely on reinsurance to meet claims.
Currently, New India Assurance Company offers P&I cover of $15 million with support from an overseas reinsurer.
(source : ET Infra)
The post India’s plan to float a locally-owned P&I Club lose steam appeared first on India Seatrade News.