In an overarching push to protect the Indian vessels and shipments that are prone to repeated attacks amidst geopolitical upheavals, the Union Cabinet has unveiled Bharat Maritime Insurance Pool(BMIP) worth Rs. 12,980 crore. This is a sovereign instrument of insurance to shield the Indian vessels and shipments which sails through the risky maritime chokepoints. The insurance coverage encompasses India-flagged, controlled and even India-bound vessels. BMIP is a sovereign guarantee to protect the vessels that carry large shipments to the country, navigating all the geopolitical risks and precarious maritime routes.
As per the sources, 70 per cent of India’s trade by volume and 95 per cent by value moves through the maritime corridors. Thus, it is pivotal to protect these vessels to ensure a resilient and uninterrupted supply chain, economic priorities and national security at large. In this direction, India launched a domestic and sovereign maritime insurance pool that intends to render a solid support to the vessels that passes through the strategic maritime chokepoints which are extremely vulnerable. The insurance provides a cushion and acts as a sovereign shield against any risks. This sovereign guarantee gives leverage to shipping companies to sail across even during uncertain times.
The sovereign maritime insurance insulates from the unpredictability of foreign companies
Most importantly, Bharat Maritime Insurance Pool(BMIP) acts as a domestic safety net and reduces dependency on the foreign insurance companies whose trajectory is unpredictable during conflict scenarios. Thus, they are unreliable. On the other hand, BMIP insurance covers damage to ships, cargo losses, pollution, crew injury, war risks and other liabilities. As it is backed by the sovereign funds of the Government of India, the stakes are higher, it is trustworthy, reliable and the insurance coverage is not prone to volatile market dynamics based on geopolitical upheavals.
This sovereign maritime insurance acts as a backup system when foreign insurance companies emerge as expensive and too cautious, especially during conflict scenarios such as the current West Asia crisis. For example, Indian shipping companies for decades have been extensively dependent on foreign insurance. They are credible during stable circumstances. However, when the maritime passages are conflict-ridden and trade networks are disrupted such as the precarious state of the Strait of Hormuz currently, insurance costs become expensive. Premium costs jump overnight and trade costs spike. Thus, shipping companies will not have an assurance when they navigate volatile passages.
Strategic benefit of the sovereign maritime insurance
The impact will be on the end consumers. When Indian vessels are destroyed, cargo is lost and the insurance also doesn’t aid, the prices of the commodities spike drastically, causing a burden on the consumer market. The prices will soar, demand for goods fall, thus rupturing the comprehensive potential and growth rate of the economy. India imports critical commodities via maritime routes. This includes crude oil, petrol, LPG, fertilizers, electronic goods and other everyday necessities via maritime corridors, which in fact, fuel the Indian economy. Hence, having a sovereign insurance cover for these shipments is imperative as it will boost the morale of the shipping companies to navigate difficult paths. This will protect the economy at large.
The sovereign insurance will give a greater degree of protection against external shocks as the shipping companies will be fortified from the foreign insurance houses and its repercussions due to unpredictable market dynamics. Minister for Shipping, Ports and Waterways Sarbananda Sonawala said that BMIP will protect Indian ships which were long exposed to the uncertainties posed by the foreign insurance markets. Union Minister Ashwini Vaishnaw asserted that as an impact of the sovereign maritime insurance, outward flow of forex reserves will be cut, as Indian shipping companies are no longer dependent on the foreign insurance hubs and will invest in the domestic insurance market itself. This will reduce the burden on our forex reserves. Thus, the insurance cost will decline by 25 per cent, which is an added advantage.
It will boost the sovereign capacity of India to safeguard maritime trade during difficult times. As a result exporters and importers will face fewer disruptions. Logistics companies will gain better visibility on costs which will motivate them to embark on navigation. At a holistic level, even the end consumers will benefit as they gain products for effective prices. This will ensure energy security, resilient supply chain, trade competitiveness, low inflation rate, thus fosters economic security of the country.
How will the sovereign insurance pool works?
The Bharat Maritime Insurance Pool(BMIP) will be administered by General Insurance Corporation of India(GIC Re), a public sector insurance entity. The government will pool Rs. 950 crores to the fund. GIC Re will add Rs. 400 crore. Remaining will be pooled by other public and private sector general insurers and oil marketing companies. The insurance fund is set up for an initial period of 10 years which can further be extended into 15 years.
BMIP, a sovereign maritime insurance pool of India can be deemed as a strategic masterstroke by New Delhi against geopolitical hiccups, without relying on foreign insurance companies. Now Indian shipments are not at the mercy of western insurers and can sail through the conflict-hit sensitive waterways with sovereign backing. This comprehensive risk coverage is a saga of self-reliance in India’s shipping and international maritime trade domain.
The global maritime insurance sector is heavily dominated by the foreign companies. On the other hand, maritime passages are evolving as increasingly contentious, the latest Strait of Hormuz scenario is very much reflective. Thus, the sovereign insurance fund is a major safe harbour to ensure safe passage of Indian vessels. With this, regardless of the global risks and external shocks Indian vessels have a safe anchor in the form of Bharat Maritime Insurance Pool(BMIP).
