India Plans $1.5 Billion Sovereign Guarantee Fund to Back Marine War Risk Insurers

India is preparing to establish a USD 1.5 billion sovereign guarantee fund to provide reinsurance support and liquidity to domestic marine insurers covering vessels operating in the Persian Gulf and adjacent high-risk waters, according to government and industry sources. A separate USD 300 million fund, with contributions from India’s insurance industry, is also being set up to help settle any large spike in insurance claims — a two-layer financial architecture designed to ensure that Indian-flagged vessels and India-bound cargo can remain insurable even as global reinsurance markets withdraw from the conflict zone.

The sovereign guarantee plan addresses one of the most critical structural failures of the current Hormuz crisis: the collapse of the global marine war risk insurance market for Gulf operations. War risk insurance premiums have surged as much as 1,000 per cent in some cases since the conflict began on February 28, according to industry brokers including Howden India and Prudent Insurance. Insurers have expanded the definition of ‘risky zones’ beyond the Strait of Hormuz to include parts of the Red Sea, Gulf of Aden, and Arabian Sea approaches — a geographic expansion that has dramatically increased the cost of cover for virtually any vessel operating in the broader Indian Ocean-Gulf region.

GIC Re Withdrawal Forces Domestic Insurer Retreat

The most damaging development for Indian shippers has been the withdrawal or sharp premium increase by India’s only state-backed reinsurer, the General Insurance Corporation of India (GIC Re). As the backstop for the domestic marine insurance market, GIC Re’s effective retreat from war risk reinsurance has left Indian insurers with little capacity to underwrite coverage for Gulf-bound vessels — directly constraining the ability of Indian energy importers and cargo operators to secure the insurance that port authorities, charterers, and banks require as a condition of vessel operation.

The proposed sovereign guarantee mechanism would mirror the Marine Cargo Excluded Territories Pool that GIC Re operated during the Russia-Ukraine conflict, providing a government-backed pool that enables domestic insurers to offer coverage for the Gulf zone even when international reinsurance markets are unavailable. Industry executives quoted by Reuters and other outlets note that even if the Strait of Hormuz reopens, war-risk pricing is expected to remain elevated for an extended period — making a durable sovereign backstop mechanism, rather than a temporary emergency measure, the appropriate policy response.

The Insurance Crisis Behind the LPG Shortage

The insurance dimension of the Hormuz crisis is less visible than the headline numbers on stranded vessels and rising freight rates, but it is equally consequential. Without adequate war risk insurance, shipowners cannot operate in the Gulf — regardless of Iran’s diplomatic assurances about safe passage for Indian vessels. The inability to insure a voyage effectively makes it legally and commercially impossible to execute, as banks financing vessel purchases, port authorities, and cargo charterers all require valid insurance as a precondition. India’s sovereign guarantee fund directly addresses this commercial impossibility, creating the regulatory and financial confidence that Indian shipowners and cargo operators need to resume Gulf operations at scale once the security situation permits.