A maritime insurance pool depends on a critical element: third-party liability. This third-party liability is provided by the mechanism of the Professional and Indemnity Club (P&I Club). People at the policy level and the general public often do not understand this difference.
Port owners, cargo owners, and countries are not concerned with the risks a ship faces at sea. The ship could drown or be blasted out by a rogue navy, for all they care. The largest financial risk of sea voyages is what happens to the cargo; what happens if a ship capsizes in a port, blocking a channel, or causes other damage like hitting a pier or just running aground. These will not be damage to the ships, massive as they are, but to others from whom the demand for reparations will be colossal.
These are the reasons why P&I is not an optional cover. It is the legal key that lets a ship trade. “A web of international conventions requires the owner to hold evidence of insurance, issued by an acceptable P&I provider, before a vessel may enter or leave port”, as a fact sheet issued by the Directorate General Shipping notes.
A cargo ship, therefore, has to buy two types of insurance cover. The first is hull and cargo insurance, akin to the own damage premium for a motor car. It then has to buy a P&I Club cover, a third-party insurance cover. Indian insurers offer only a small variety of self-damage premiums and none of the P&I Club cover. The scale of the latter is literally king-sized operations.
In times of war, even the self-damage portion is not available. The success of the Bharat Maritime Insurance Pool, which rolled out with a sovereign guarantee of $1 billion in May this year at the height of the US-Iran war, is therefore a war risk self-damage cover. In other words, while GIC Re will collect premiums and offer war risks and others to the ships that take insurance cover under the Bharat Maritime Insurance Pool, the ships will still have to buy a P&I cover from abroad at least till when India develops one.
Before we venture further into the ramifications of the P&I Club, it is important to note that P&I certification has now been made mandatory under Section 188 of India’s Merchant Shipping Act, 2025 for oil tankers above 2,000 tonnes. So India has rapidly aligned its sea trade rules in line with those of maritime-leading nations. The alignment came about as India’s goods EXIM trade began to grow sizably after decades of autarky.
Of the 12 Clubs that straddle global maritime trade, India is not a member of any of them, even though it has already developed recognition of the P&I Clubs of China, Russia and even Iran. The expectation is that all of them would also offer the same recognition to the Indian Club, whenever it is born. It is interesting to note the list of countries whose P&I Clubs India has recognised. These are the countries that dominate seaborne goods trade with India.
Other than the 12, there are minor P&I Clubs too, but their utility is limited. Not all ports recognise them, so a ship’s manoeuvrability is limited when it picks up a cover from them. For instance, 23 minor P&I insurers are approved under Rule 2(e) of India’s Port Entry Rules, 2012. Among Indian insurers, New India Assurance is also one such minor provider, offering a maximum cover of USD 15 million. Even here, 86 per cent of the equity in the puny entity is held by Hydor AS, Norway, with the share of NIA at just 10 per cent, and 4 per cent from GIC Re.
The Club of 12 is also referred to in shipping parlance as the International Group of P&I Clubs (IG). It follows that the minor P&I insurers are non-IG issuers. All maritime data sheets agree that the IG insures cover about 90 per cent of the world’s ocean-going tonnage, with a premium receipt of USD 3.8 billion annually.
Imagine a ship has to call at a port. It will have to comply with the terms of:
- The Civil Liability Convention (CLC 1992) for oil tankers carrying persistent oil, requiring a state-issued certificate backed by P&I
- The Bunkers Convention 2001, extending compulsory liability cover to bunker-oil pollution from non-tankers
- The Nairobi Wreck Removal Convention 2007, requiring certificated cover for wreck-removal liability, and
- The Maritime Labour Convention (MLC 2006), requiring financial security for crew wages, repatriation and death/disability.
All these covers can be secured only if the ship is willing to shell out a premium to one of the IG members. The P&I Clubs in the IG share risk in tiers. Each club retains the first USD 10 million of a claim; claims from USD 10 million to USD 100 million are pooled across all clubs. Above that, a collectively purchased Group Excess of Loss (GXL) reinsurance programme, with the Bermuda-based Hydra, a specialised insurance company, extends the cover into the billions. All IG members have their segregated accounts in Hydra as a sort of global clearing house.
These are complex financial instruments that require decades to build up. As of now, Indian operators spend close to USD 60 million in these premiums to IG members. Since a large percentage of the self-damage premiums also go abroad, it means the wider marine-insurance outflow is larger.
What is the cost that India pays for not having its own P&I Club? As of March 2026, India depends on foreign clubs for over 95 per cent of P&I, with USD 60 million flowing abroad annually. Compared to the major Asian maritime nations, India’s position tells something. Japan carries roughly 11 per cent of world tonnage, China does around 12 per cent, and South Korea about 4 per cent. Each of these three operates a national P&I capability of their own, whereas India operates none of comparable standing.
It will not be easy, though. Just examine how a claim is processed in an IG member-led case. If there is a casualty, the P&I insurer covers liability exposures, while the self-damage (hull and machinery insurance) covers property salvage. The P&I club provides security under SCOPIC and letters of undertaking, supports the Special Casualty Representative, and coordinates salvors, authorities, lawyers and pollution experts — managing crew, pollution and third-party claims, and ensuring timely funding and access to global response networks.
Salvage sits at the intersection of self-damage and P&I cover, and the split is essential to the workshop. Most ocean salvage is contracted on Lloyd’s Open Form (LOF) — the “no cure, no pay” agreement under which the salvor is rewarded only if property is saved, the reward being assessed against the salved value of ship and cargo (an H&M/cargo exposure).
Since the “no cure, no pay” principle used to discourage salvors from tackling low-value but high-pollution casualties, the Lloyd’s Open Form added a new clause in the year 2000, known as the SCOPIC clause. (Special Compensation P&I Clause, 2000) Where it is invoked, the salvor is paid an agreed compensation for the effort they have made to retrieve the ship, regardless of success. The compensation is paid by the P&I Club that is involved. Essentially, the P&I club becomes the casualty’s financial nerve-centre. This level of sophistication is just not available, off the market, if India were to set up a P&I Club. It will take more than a decade to sharpen and acquire the confidence of the insurers.
However, in the announcement about the formation of the Bharat Maritime Insurance Pool, the government had noted that the move aligns India with major maritime nations such as the United Kingdom, Japan and South Korea, which have already established state-supported insurance frameworks to safeguard national trade interests. “The initiative also fits within the broader Maritime India Vision 2030, which identifies the development of robust insurance infrastructure as a key pillar in positioning India as a leading global maritime power”, it clarified.
Note on the Bharat Maritime Insurance Pool:
On April 18, the Union Cabinet approved the creation of the domestic maritime insurance pool with a sovereign guarantee of Rs 12,980 crore. “This is aimed at insulating India’s maritime trade from global volatility… to significantly reduce dependence on foreign underwriters and ensure uninterrupted risk coverage for Indian shipping”, a government press note issued after the meeting stated.
Based on the Pool, Indian insurance companies can now underwrite the hull and cargo risks for ships bringing goods to India at any of the ports. The sovereign cover of Rs 12,980 crore means that if a loss exceeds the capacity of an insurance company or a clutch of them to make good the loss, the government will step in.
But that already seems unlikely, as the pool has started receiving commitments from the insurance companies. These commitments come from a share of the premium income that these companies put into the Pool. The commitments show that Indian insurers have begun to write insurance cover for ships bringing goods to India, including from the Strait of Hormuz, resuming a line of business that had gone into hiatus after the US-Iran war began at the end of February this year.
India has scored here over the USA. There are no restrictions that the vessels insured by the Bharat Pool should carry the Indian flag. The important aspect of the cover is that the premium is being paid in Indian rupees, saving on foreign exchange. This strengthens the case for the pool as a domestic maritime capability. The level of interest contrasts sharply with that towards the US Development Finance Corporation. The company was supposed to provide such cover from the USA in the wake of the hostilities, but has not managed to cover anything so far, as per its own data.
