Domestic refineries owned by oil companies have suddenly found themselves in a bind as global reinsurance giants have refused to provide cover for refineries processing Iranian crude oil.
The reinsurers have resorted to such a step in the wake of sanctions imposed by the US and the European Union. Indian insurance companies alone cannot provide insurance cover for refineries as they fall under the high risk category and need substantial reinsurance support.
But most reinsurance companies that provide reinsurance support to Indian firms are complying with the US fiat on sanctions against Iran. Recently, GIC Re, the country’s sole reinsurer, had intimated to general insurers about the situation where any Indian refineries processing Iranian crude cannot recover any claims from the reinsurers.
“We had recently received a request from Mangalore Refinery and Petrochemicals (MRPL) for a cover for their single-point mooring (SPM) on discharge of Iranian crude. Consequently, a meeting was arranged of officials from the four public sector undertakings and the cover discussed. It emerged that apparently the refinery processing Iranian crude would also be out of the ambit of any cover and losses would not be payable by the reinsurers on the protection programme of the companies,” said a communication from GIC Re’s chairman AK Roy to the General Insurance Council.
“It also dawned on the insurers that this fact had not been made clear to them that they were uncovered whilst processing Iranian crude owing to the sanctions clause. It is, therefore, felt that the General Insurance Council should organise for a discussion of the insurers to identify the issues involved and attempt to find out possible solutions,” the communication said.
“Indian insurers can’t even think of doing it on their own as plants are expensive. They need to go in for reinsurance to hedge their risk. We’re negotiating with them as India has cut down oil imports from Iran,” said a top insurance sector source.
India has proposed to cut oil imports from Iran by 10-15% in the next fiscal.