"According to the proposal, public sector insurance companies and the Oil Industry Development Board under the petroleum ministry would contribute money for the fund that would provide reinsurance for the state-owned insurers," Vivek Rae, Secretary for India's Ministry of Petroleum & Natural Gas, said on Sunday.
The measure is reportedly aimed at countering the effect of sanctions imposed by the European Union, banning the bloc's members from purchasing Iran's oil or extending insurance coverage for tankers carrying its crude. The EU bans entered into force on July 1, 2012.
"What will be the size of this fund, how much we are required to contribute, whether it is enough to cover reinsurance -these are the details that insurance companies have to work out," Rae added.
Indian refiners HPCL, Mangalore Refinery and Petrochemicals Limited (MRPL) and Essar are the main clients of Iranian crude oil.
The US, Israel, and some of their allies have repeatedly accused Iran of pursuing non-civilian objectives in its nuclear energy program.
Using the unfounded allegation, the US and its European allies have imposed unilateral sanctions against the Islamic Republic.
Iran rejects the allegation, arguing that as a committed signatory to the Non-Proliferation Treaty and a member of the International Atomic Energy Agency it is entitled to develop nuclear technology for peaceful purposes.