Amid ongoing tensions in the Gulf of Hormuz and a fragile ceasefire in the region, trade disruptions persist not primarily due to naval blockades but because of insurers withdrawing war-risk coverage. Although Iran has reopened transit routes and imposed tolls for passage through strategic points like Larak Island to provide security assurances, these measures have not convinced insurers to resume coverage, leaving traders to seek costly additional war-risk insurance. Premiums for such coverage have sharply increased, in some cases soaring from about 0.2-0.3 percent to nearly 10 times the cost of goods shipped under cost, insurance, and freight (CIF) terms.

For India, which is the world’s third-largest oil importer and relies on maritime routes for over 90 percent of its trade, these developments highlight a significant structural vulnerability. In response, the Indian government has activated a $1.5 billion sovereign guarantee facility supported by a ₹1,000 crore war-risk fund and a separate ₹300 crore industry-claims pool. These financial mechanisms serve as insurers of last resort, aiming to stabilize energy supplies and maintain trade flows despite the elevated regional risks.

While these short-term measures enhance resilience against immediate disruptions, they underscore India’s deeper dependence on external marine insurance providers, particularly Protection and Indemnity (P&I) clubs. These clubs—approximately 13 in number and based predominantly in Western markets, with notable Chinese involvement—play a crucial role by providing liability coverage and reinsurance through mutual capital pools, global risk diversification, and strong industry credibility. India's maritime insurance sector shows a pattern of declining domestic direct coverage alongside increasing reliance on foreign reinsurance, reflecting limited underwriting capacity, fragmentation within the national shipping industry, and capital constraints.

To address these challenges, India is pursuing a gradual strategy to build a domestic maritime insurance ecosystem capable of assuming greater risk retention. Central to this approach is strengthening institutions such as the General Insurance Corporation of India (GIC-Re) to enable higher domestic underwriting levels and reduce foreign dependence. Concurrently, the establishment of a national war-risk insurance pool is designed to distribute exposure across multiple insurers, with sovereign guarantees providing protection against catastrophic losses. Regulatory reforms are also planned to mandate partial domestic retention of maritime risks, fostering underwriting expertise and curtailing foreign exchange outflows.

Despite these efforts, India intends to maintain strategic engagements with global reinsurers and P&I clubs to ensure access to capital and international market credibility. This calibrated approach aligns domestic capacity building with continued global integration rather than attempting rapid self-sufficiency.

India’s plan echoes the historical evolution of P&I clubs in markets like the United Kingdom, where mutual shipowner associations gradually expanded their capital base and risk-sharing mechanisms over decades to build robust maritime liability frameworks. Drawing on experiences from countries such as Japan and Scandinavian nations, India aims to develop layered risk structures—including lower and upper pooling layers and eventual creation of an integrated regional insurance entity—supported by innovations in naval intelligence, satellite monitoring, and geopolitical risk analysis.

Further progress toward maritime insurance sovereignty will depend on broader development of India’s maritime ecosystem, including expanding shipbuilding, fleet ownership, trade volumes, and streamlining ship registration processes. Enhancing ship chartering and pool management capabilities alongside promoting coastal shipping are essential to deepen cargo bases and vessel ownership, prerequisites for establishing viable P&I structures.

The trajectory ahead requires phased, strategic execution, recognizing that China took nearly two decades to evolve its own P&I club into a globally integrated institution. India’s ‘Hydra Strategy’ proposes a resilient, interconnected framework combining sovereign guarantees, domestic insurance pools, and reinsurance partnerships to ensure maritime trade continuity amid geopolitical disruptions, reinforcing energy security and economic stability.