Amid a fragile ceasefire, the continued Hormuz choke shows trade is constrained less by naval blockades than by insurance withdrawal, as reopening, with Iran’s transit tolls and Larak-island security cover, has not persuaded insurers to restore war-risk coverage. Amid escalating geopolitical tensions, traders must secure additional ‘war-risk cover’ beyond standard Institute Cargo Clauses (A, B, C), as such risks are excluded, with premiums surging sharply from about 0.2-0.3 per cent to nearly 1000 per cent of CIF value.

For India, the world’s third-largest oil importer with over 90 per cent trade by sea, the disruption exposes a structural vulnerability. Consequently, the government has operationalised a $1.5 billion sovereign guarantee, alongside a $300 million ‘industry-claims pool’ and ₹1,000 crore war-risk fund, acting as insurer of last resort to sustain energy flows and trade continuity.

These measures mark a shift towards active risk backstopping and strengthen short-term resilience, yet they underscore a deeper reality: reliance on external insurance markets, particularly P&I (Protection and Indemnity) clubs for reinsurance, leaves India exposed to geopolitical and financial shocks, necessitating a reimagining of its long-term maritime insurance architecture.

Reassurance constraints

Global marine insurance is anchored in about 13 major P&I clubs under the International Group of P&I Clubs, largely based in Western markets, with notable participation from China. These mutuals provide liability cover and reinsurance through features such as deep capital reserves, global risk diversification, seamless capital flows, high-risk absorption capacity, and strong credibility with ports, shipping companies, regulators and financiers.

India’s insurance outflows reveal a structural shift from declining direct domestic coverage to rising reinsurance (see Table), indicating persistent external dependence on risk absorption despite ongoing reforms. This reflects limited underwriting depth, capital constraints, and a fragmented shipping base, resulting in significant premium and risk being ceded abroad and reinforcing reliance on global P&I clubs. Consequently, these structural limitations constrain India’s ability to replicate the P&I model, necessitating a scaled, and evolutionary approach to building robust domestic maritime insurance and reinsurance capacity.

Consequently, India’s strategy to develop its own P&I capability must be gradual, layered, and institutionally anchored. The immediate priority is to strengthen domestic insurance capacity through entities such as ‘GIC-Re’, enabling higher risk retention and reducing external dependence. Parallelly, a national war-risk insurance pool, can spread high-risk exposures across insurers, with sovereign guarantees absorbing catastrophic shocks, thereby ensuring continuity without straining individual balance sheets.

Complementing this, regulatory measures mandating partial domestic retention of marine risks can build underwriting expertise while curbing foreign exchange outflows. At the same time, strategic co-insurance and reinsurance partnerships with global players will remain essential to access capital and credibility. Thus, India’s approach is not immediate replication but calibrated capability building, aligning domestic strengthening with global integration to progressively move towards maritime insurance sovereignty.

Hydra strategy

The global evolution of P&I clubs offers a critical template for India. In the UK, early mutual associations of shipowners emerged to cover liabilities that commercial insurers avoided, gradually deepening capital, building actuarial capacity, and interlinking through reinsurance to form the backbone of the International Group of P&I Clubs. This evolution was incremental, layered, and rooted in risk-sharing rather than centralised design.

To overcome its constraints, India can collaborate with maritime economies such as the UAE, Indonesia, and Singapore to build scale through integrated trade flows, port networks, and shipping capacity. A phased pooling structure, Lower Pool ($10-50 million), Upper Pool ($50-100 million), and Individual Club Retention, can gradually evolve into a Hydra Insurance Company Ltd, anchoring a regional risk-sharing ecosystem.

Within this, a Hydra Development Strategy enables multiple interlinked layers: sovereign guarantees for stability, domestic and war-risk pools for risk distribution, and reinsurance partnerships for global capital access, supported by institutions like ‘GIC-Re’. Experiences of Japan and Scandinavian systems show that credibility emerges gradually through capital discipline and integration.

By embedding innovation, naval intelligence, satellite tracking, and geopolitical analytics, India can enable dynamic underwriting, ensuring resilience where no single failure disrupts maritime trade continuity.

The core strength of the Hydra strategy lies in its systemic resilience: even if one node is stressed, others sustain continuity, ensuring that maritime trade is not held hostage to singular points of failure.

Moving forward, India’s pathway to maritime insurance sovereignty must be anchored on a broader expansion of its maritime ecosystem. This includes scaling-up shipbuilding, fleet acquisition, and trade volumes, alongside easing ship registration norms, strengthening ship chartering and pool management companies, and promoting coastal shipping. Such measures will deepen cargo bases and vessel ownership, critical prerequisites for any viable P&I framework, while enabling India to gradually expand its insurance and reinsurance footprint across South Asian, Southeast Asian, and Gulf routes. For insurers, capacity building through specialised marine underwriting and pooled risk participation remains essential. Re-insurers, particularly GIC Re, must expand risk absorption and global partnerships, while shipping aligns with domestic insurance; a National Export Insurance Company-type model can initiate India’s maritime insurance sovereignty. The government, beyond sovereign guarantees, must enable regulatory reforms, public-private partnerships, and a national war-risk pool integrated with maritime security frameworks.

Importantly, global experience reinforces gradualism. China initiated its P&I system in 1984 and only later evolved it into a scalable, globally integrated club based in Shanghai in almost two decades. Hence, India’s trajectory, given its constraints, must similarly be phased and strategic. A Hydra Strategy, built on layered, interconnected institutions, offers the most resilient pathway to maritime insurance sovereignty, shaping a resilient, developed, and sovereign India capable of withstanding disruptions like the Hormuz’ choke while securing its economic interests with confidence.

The writer is Professor and Head, IIFT New Delhi. Views expressed are personal

Published on April 17, 2026