Seed Fund for Shipping Insurance

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The government is considering providing seed funding to establish a shipping insurance entity

The Indian government is contemplating the use of its own funds to provide seed investment for the establishment of a protection and indemnity (P&I) insurance entity aimed at insuring cargo vessels. This decision comes as progress in setting up such an entity has been slow, despite a prior announcement by Union Finance Minister Nirmala Sitharaman over a year ago. The initial plan had envisaged private insurers and shippers contributing to the initiative; however, a lack of regulatory clarity and the emerging nature of India’s shipping sector have hindered significant advancement, according to sources familiar with the matter.

The Ministry of Ports, Shipping, and Waterways initially reached out to insurers and shipping companies in February, encouraging them to take on the role of providing the first layer of insurance for shippers and shipbuilders. The expectation was that reinsurance would be handled by more established international players, thus creating a layered approach to managing risk. Yet, despite multiple rounds of discussions, the amount of funding that industry stakeholders are willing to commit remains limited. This shortfall has prompted the government to consider alternative solutions, including the possibility of a government-backed seed fund once necessary legislative frameworks are established.

A senior official from the Ministry of Shipping indicated that such preliminary investment could be facilitated either directly by the government or through the Maritime Development Fund. However, the official emphasized the need for a definitive structure and approval from the Department of Financial Services (DFS) before any final decisions are made. Additionally, the authorities are exploring a fixed premium framework as a potential starting point for the P&I entity, which could help streamline initial operations and attract industry participation.

Throughout this year, inter-ministerial consultations have been ongoing to draft a comprehensive plan for establishing the marine insurance entity, with active engagement from industry stakeholders. According to officials, the finance ministry is likely to propose an amendment to the Insurance Act to enable the creation of mutual insurance associations—a critical legal adjustment that has been a key hurdle in forming the P&I club. Until this legislative change is implemented, progress on this front will remain limited.

In summary, while the government remains committed to advancing the P&I entity initiative, challenges related to regulatory clarity and industry investment levels have necessitated a more proactive role from the Centre. By potentially providing seed funding and facilitating legislative amendments, the government aims to create a more conducive environment for the establishment of a sustainable marine insurance ecosystem in India.

Source: Business Standard