Even as the General Insurance Corporation awaits clarification from foreign re-insurers on their stand on cover for crude oil sourced from Iran, Indian refineries can breathe easy, with the proposed insurance pool set to take off.
The Petroleum Ministry has informed the Finance Ministry that it will share the burden with insurance companies. These companies have been seeking sovereign guarantee as they do not have the capacity to honour a claim.
According to Financial Services Secretary Rajiv Takru, “The Petroleum Ministry has agreed to provide an initial amount of Rs 500 crore. We are ready to set up the pool.” This means any claim by a refinery importing crude from Iran will get honoured.
Indian general insurers provide cover to oil refiners and then re-insure the risk with global re-insurers. But with Iran under US/EU sanctions, global re-insurers provide cover with a “sanction clause” that limits the payout in case of a claim.
The decision to set up the pool was taken in April, but oil refineries had felt the fund was too small and that it may not cover the requirement of even a single refinery. In the absence of a sovereign guarantee, the idea of an insurance pool was not acceptable to them.
The insurance pool plan was to provide cover to domestic refiners such as Mangalore Refinery and Petrochemicals Ltd, a subsidiary of Oil and Natural Gas Corporation; Hindustan Petroleum Corporation Ltd; and Essar Oil that process crude oil from Iran. According to industry experts, over the last three quarters, refiners have either sharply reduced or even stopped importing crude from Iran in the absence of an insurance cover.
Takru said oil refineries will continue their existing arrangements with insurance companies and the Rs 2,000-crore Indian Energy insurance pool will act as a reinsurance support for the insurance companies in case of a claim.
The pool is to be created through contributions by State-owned insurers, which will collectively provide Rs 1,000 crore, while the balance Rs 500 crore will be pooled in by the oil industry. “Insurance companies will contribute to the pool every year and the size of the kitty will grow,” Takru said.
The pool is to be managed by GIC and the four state-owned insurance companies — New India Assurance, United India Insurance, National Insurance, and Oriental Insurance.