The Russia- Ukraine conflict and the consequent economic sanctions on Russia by NATO has placed Indian importers and exporters in a precarious situation. Why? Due to lack of foresight of the national re-insurer & the Indian insurance industry and absence of synchronisation with the Government of India’s stated policy on the Russian sanctions.
Government of India has not subscribed to the trade and economic sanctions against Russia though its stated position is that there is no room for war and a peaceful resolution to issues have to be found . India has had long-standing trade relations with Russia, the US of A, and other NATO countries and now the trade with Russia has only increased with higher volumes of crude oil imports as it makes economic sense for India. Russian crude is cheaper than crude oil from the Middle-East. As for other commodities and manufactured products too, Russia continues to be a major trade partner of India. So where is the issue?
The issue is that, the national reinsurer, GIC Re recently decided that there will be no insurance cover provided by them for imports and exports of any cargo from/to Russia, Ukraine and Belarus. GIC Re was under pressure from global reinsurers from Europe and the US of A , whose governments had imposed strict economic and trade sanctions against Russia for its military action against Ukraine. GIC Re’s retrocession programs involve all these reinsurers and hence they succumbed to the pressure. Especially in case of crude oil imports, where the limits required are enormous and beyond Indian market capacity, there is a dependence on reinsurance. In case of other cargo too, where limits are well within the capacity of Indian insurers, they stopped writing imports/exports from/to Russia, Ukraine and Belarus. Why? Because Big Daddy, GIC Re said so. Myopic approach indeed! The European and American reinsurers were acting in line with their respective governments’ stated political position against Russia. However, the Indian insurers and national reinsurer were/are not in sync with Indian government’s stated position on Russia.
The Government of India cracked the whip and forced the Indian insurance industry to create a Risk Pool for import of fertilisers from Russia wherein crude oil too would be added subsequently. Limits may not be very large but it is a step in the right direction, something the insurance industry should have initiated with prodding from the government. Here again, the premium rates decided by the Pool is close to 10 times the rates the insurers normally charge. Is this an underwriting decision? No, an opportunity to cover up years of ‘ cowboy underwriting’ for top-line and force the Indian fertiliser importers when they have no options. The government should step in and have a look again, though premium rating is not their domain and should be left to the insurers themselves. However, when the Indian insurance industry gangs up to extract its pound of flesh from insureds who do not have options, time for the government and the IRDAI to step in.
The more important aspect is providing insurance cover on all other commodities and products imported from/exported to Russia where the limits are well within the capacity of the Indian insurance market . By refusing to insurer such shipments, am afraid the Indian insurers are not acting in the national interest and their approach is at loggerheads with the Indian government’s stated position on trade with Russia. Thinking aloud, if a number of small Indian exporters/importers complain to the Government that they are carrying out trade in line with Government policy but no Indian insurer is willing to insure their cargo, ( even when it is well within their capacity)as they have cartelised, will not the insurers be pulled up by the government? Maybe, even leading to suspension/cancellation of their licences.
Trust the IRDAI/ Government of India would step in quickly to nudge the Indian insurers along the right path to ease the pressure on Indian importers and exporters. We respect the European and American reinsurers who are totally aligned with their governments’ policies on trade with Russia. Why the mis-alignment of the Indian insurance industry with Indian government’s policies?
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Bala, the usual fertiliser rates for major importers vary between 0.05% to 0.07%. If insurers were to add an extra for including War and Strikes cover in these difficult times and charge the rates you are referring to, don’t see where we are going wrong. Plus people should not forget insurers are exposing double their net for covering these risks and have built up a corpus in national interest. Additional cargoes may be added in due course.
It is easy to be critical and you are a thought leader and your words have a great impact on the minds of the fraternity, so maybe you could be a little more objective in your approach and not present a one sided picture that casts aspersions on the intent of the insurers. It is so easy to belittle us but think of the exposures involved and the financial strain on insurers if two major incidents were to happen in the next few months.
Sibesh, the intent is not to belittle anyone but a genuine lament from one who is part of the industry. The industry should have rallied behind the government in supporting trade with Russia, given the fact that India does not support sanctions against Russia. So why the panic reaction in refusing even the smallest of risks even where capacity is never a problem? This defies logic and I reiterate,is contrary to government policy on Russia. It is not an underwriting decision. Yes, on the government’s directive, a limited pool has been created, but this is too little, late and not done suo moto. An appeal to Indian insurers is that upto your individual capacities please do support Indo-Russian trade for smaller risks and do not restrain yourselves behind the facade of a limited pool.
Dear Sir, Such a logical conclusion to insuring exports/imports to/from Russia! When foreign insurers abide by their respective governmental policies, why not Indian insurers? A re-look into our rates is needed too! Regards, Sridevi.
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There is a saying that one should fix the roof when the sun is shining, not when the rain is pouring. Decades of neglect of the marine insurance business has resulted in where we are now. The pure net capacity of Indian market in marine insurance is peanuts. There was more hull premium in the market a decade back than what is written now. The actual decline of marine business did not happen when it was detariffed in 1994 but when the sector was opened in 2000. Marine insurance was offered as a freebie to grab more voluminous business in other lines. Except marine underwriters, everyone was happy with cowboy underwriting be it the insured, the broker or insurer’s own sales team. Marine underwriter was overruled and overpowered by stronger market forces.
Sanctions are a reality of geopolitical scenario in this world. A similar situation occurred in 2012 when importing Iranian crude was in national interest but India had no capacity for crude shipments or P&I cover. What did the shipping industry or oil companies do since then. Now they are back to imploring the govt to ask insurance industry to provide a solution.
The question here is not of national interest and patriotic feelings but purely a commercial and economic one. Today the prime motive of oil companies is to buy crude cheaper and increase their profit. If tomorrow the crude oil prices go down in the gulf, will they still care for Indo Russian friendship and trade relations. Why can’t importers pay higher insurance cost when they have a 25-30% margin in import cost. So, the question I repeat is economic. The years of lousy pricing, no surpluses and adverse loss ratios have affected the capacity enhancement in marine insurance.
As regards the rating there is lot of unknown in Russian shipments. How do you handle a significant salvage or GA situation in Russian shipments? How do you address the legal issues related to sanction violation? If you compare the international rates for whatever capacity is available in the market the pool rates are still many times lower. How do you capitalise the pool to keep it sustainable in the long run? When everywhere price is increasing how can one expect exception in marine insurance.
One GA casualty in the Indian Ocean in 2020 has reportedly wiped out 20 years premium charged on the crude shipments. All stakeholders need to take a hard look on how to salvage marine insurance and then expect it to provide effective solutions.
I echo every word in your first paragraph – the grim reality! However, have a divergent view on what you say later. It is not about patriotism or nationalism, as you say -True. The simple submission is that once your government has taken a position, you have to support it, thats all. This is what the NATO reinsurers are doing. Should Indian insurers/ GIC Re step in on their own without a push from the government? The cowboys are trying to repair the roof when it is raining, so to say. Why do Indian insurers refuse to write even the smallest of Russian shipments? This is where we have disagreement. Specifically on small shipments well within their capacity, once the government cracks the whip, all insurers will fall in line.