Financial Daily from THE HINDU group of publications
Wednesday, Dec 29, 2004
Logistics - Shipping
Money & Banking - General Insurance
War risk insurance for Indian flag ships liberalised
New Delhi , Dec. 28
IN a New Year gift to the domestic shipping industry, the Government has liberalised the war risk insurance for Indian flag ships.
It has granted freedom to ship owners to place their war risk cover directly with public sector insurance companies as well as with private insurance firms operating in the country from January 1.
Currently, Indian ship owners have to insure their war risk compulsorily with the Government through the scheme of `War-Risk Insurance on Marine Hulls (1976)'. Though this cover is provided by the Government directly to the ship owners, the scheme is administered only by the public sector insurance companies. The premium collected on this account is credited to the Government and the claims, if any, is paid by the Central Government. This scheme is now being dispensed with.
"All the general insurance companies operating in India would now be free to underwrite the war risk on marine hulls with effect from January 1 subject to IRDA regulations and guidelines," says an order issued on December 24 by Mr K.U. Khan, Officer on Special Duty, Insurance Division, Ministry of Finance.
The shipping industry is elated with the development, but feels that this is a "mid-way" before the owners are allowed to place their war risk cover in overseas markets and gain from the low premiums available there. "We feel this is one step before the domestic owners are asked to go to international markets to underwrite their war risk cover," a top official with a leading domestic shipping company told Business Line.
The industry feels that they have not been given 15 days notice period, as requested, for a seamless transfer of the war-risk scheme from the Government to the four public sector general insurance companies and the private insurers.
However, smaller players in the industry feel that they are "not yet ready for the change" and prefer the continuance of the scheme by the Government, albeit with certain amendments. "Bigger players such as SCI and Great Eastern can get better rates by virtue of having greater negotiating powers. That may not be the case with smaller companies," a ship owner remarked.
He said that the industry "definitely benefited" from the Government-run scheme in view of the low rates that prevailed till recently. "At the same time, the stipulation on placing the war-risk cover only with the Government prevented bigger players from negotiating better terms in the international market and secure rates which would have been much lower than what the Government rate was," he observed.
The cover provided under the existing scheme is a peace-time war-risk cover. In the event of a war being declared, then the underwriter (Government) reserves a right to cancel the cover by giving 14 days notice and to re-instate the cover by charging an additional premium, which is normally levied for a limited period, and withdrawn upon cessation of war conditions.
The Government is currently charging a premium of 0.08 per cent per annum on the market value of the ship by way of war-risk (peace-time war risk).
Even this is considered to be on the higher side as peace-time war risk cover is available in the London market at possibly 20 per cent of the premium charged by the Government.
An Expert Group set up by the Shipping Ministry, in its report submitted earlier this year, said that the existing scheme had become outdated and should be reviewed and modified to bring it in line with the international market.
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