India planning $1.5 billion Guarantee Plan for Ships passing through Strait of Hormuz

The Iran-Israel war is posing a significant threat to the global economy. It’s getting tougher for developing countries to tackle the growing economic issues.

The threat to the shipping has increased as Iran is destroying ships passing through Strait of Hormuz without its permission.

Amidst this, India is planning sovereign guarantees to support insurers that provide insurance cover for vessels travelling in the Persian Gulf.

The plan includes a $1.5 billion sovereign guarantee fund to provide insurers with reinsurance support. A separate $300 million fund with contributions from the country’s insurance industry is also being set up to help settle any large increase in insurance claims.

Maritime war risk insurance premiums have increased as much as 1,000% in some cases. The spike in premiums has sharply raised costs for ship owners, traders and energy firms moving cargo through the route.

Three insurance industry sources said India’s insurance regulator recently sought feedback from industry experts on the nature of support needed and on how to implement the funding.

The guarantee funds could reduce India’s dependence on overseas reinsurance and give insurance companies the comfort they need to continue providing cover as trade flows resume through the region..

Maritime insurance covers ships and cargo against risks such as accidents, piracy and conflict. War-risk cover is typically excluded from standard policies and must be bought separately, with vessels sailing through conflict zones paying sharply higher rates. The Middle East conflict began on February 28 when the U.S. and Israel launched attacks on Iran. Iran has since closed the Strait of Hormuz and struck sites in other countries in the region.

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