"GIC communicated to Indian ship owners last week saying that they are willing to provide liability cover of up to $50 million against collision and oil spills on a per-voyage basis," said Sunil Thapar, a director looking after the bulk carriers and tankers business at the state-run Shipping Corp. of India Ltd (SCI).
"Accordingly, GIC has instructed all four state-run insurance companies-United India Insurance Co. Ltd, New India Assurance Co. Ltd, National Insurance Co. Ltd and Oriental Insurance Co. Ltd-to get the product approved by Irda," said P.V. Kulkarni, a vice-president looking after insurance at SCI, India's biggest ocean carrier. Irda, or the Insurance Regulatory and Development Authority, is the insurance industry regulator.
Irda approval will activate India's first third-party liability insurance cover for ships, a business dominated by European insurers.
India, which depends on imports for about 80% of its energy needs, buys 14-15 million tons of crude oil a year from Iran, the biggest supplier of the fuel to the country after Saudi Arabia.
The EU is seeking to curb Iran's oil trade to press Tehran to shut its civilian nuclear program. The sanctions will prevent European insurers and reinsurers from indemnifying ships carrying Iranian petrochemicals from May and crude and oil products from July.
Iran is the second largest producer in the Organization of Petroleum Exporting Countries and has the second largest oil and gas reserves in the world.
In shipping, third-party liabilities such as oil pollution, wreck removal and damage to port property are commonly referred to as protection and indemnity (P&I). This is separate from insurance covers for a ship's hull and machinery.
Globally, such third-party risks are insured with the International Group of Protection and Indemnity Clubs (IG Clubs), a 13-member group based in London that provides covers for oil pollution and wreck removal for at least 95% of the world's ocean-going ships by capacity. Many Indian ships are covered by IG Clubs.
Under the proposed EU sanctions against Iran, the IG Clubs will no longer be able to provide this cover to ships that haul Iranian oil from 1 July.
"Indian ship-owners who continue to engage in the trade of Iranian oil will be required to make alternative insurance arrangements due to the impending prohibition on the provision of insurance cover," said David Bolomini, an executive at the International Group of P&I Clubs. "EU insurers domiciled, incorporated or regulated will be caught by the prohibition and this will cut off the group's reinsurance arrangements to all 13 member Clubs of the IG."
Although some say that the cover the GIC has proposed is far less than the $1 billion cover provided by IG Clubs for individual claims against oil pollution, Shipping Corp.'s chairman and managing director Sabyasachi Hajara said even a $50 million cover is "okay".
"It is a commercially pragmatic decision to have at least this cover. It is a very short voyage from Iran to India and over the last 10 years, there have been virtually no claims in this regard. So even with very limited cover, it is commercially possible for us to undertake such voyages," Hajara said.