Understanding Protection and Indemnity (P&I) Insurance: Exploring its Coverage and Benefits

P&I insurance is typically provided by a P&I club, which is essentially a mutual insurance association that provides information, information, representation, and risk reduction to its members. Typical members of the P&I club include ship owners, operators and charterers – and recently, membership has been extended to forwarders and warehouse operators. The P&I Club reports only to its members and not to shareholders like a traditional marine insurance company.

What does P&I insurance cover?

The main purpose of P&I insurance is to provide policyholders with protection against personal injury, illness and death claims from crew, passengers, etc. P&I insurance also covers things like:

– Claim liability due to collision

– Remove the wreck

– The person who fled according to the status and repatriated

– Damage or loss of goods

– Damage to fixed or floating objects

– Civil liability after pollution or oil spill

– Liability under approved towing contract

It does not cover risks under a workers’ compensation policy or under the collision clause in a traditional hull policy.

A brief history of P&I . insurance

It can be traced back to the 19th century in London, UK. At this point, shipowners and charterers will claim insurance for their ships, and shippers will receive insurance for the cargo. However, shipowners and charterers realized that they could be at fault if their goods were lost or damaged at sea, so they sought third-party indemnity insurance for cargo liability. Underwriters in the first half of the 19th century were reluctant to take on third-party cargo liability risks, and so shipowners responded by forming mutual P&I clubs.

As shipping volumes increased in the second half of the 19th century, so did the number of insurance claims, particularly regarding collisions and third-party liability claims. During this period, it became more common for seafarers to claim compensation from their employers. Furthermore, the Lord Campbell Act of 1846 allowed the dependents of crew members killed on board to be brought forward, while also introducing the possibility of a passenger claim – a major risk for owners ships considering the migration boom to North America and Australia.

In response to growing risks and inadequate insurance coverage, the first protection association was formed in 1885, called the Shipowners’ Mutual Defense Association (which later became the Britannia P&I Club). The purpose of the club was to cover liability for loss of life and personal injury, as well as the risks of collision which were excluded from marine insurance policies at that time. The club was successful and other similar associations were formed. About 20 years later, clubs began to offer indemnity insurance to provide additional coverage to ship owners, hence the name P&I club.

P&I clubs around the world

P&I clubs originated in London, United Kingdom, but the concept soon spread to other major shipping jurisdictions around the world. Today, there are thriving clubs in: United Kingdom, Bermuda, China, Japan, Norway, Singapore, Sweden, United Arab Emirates, USA and South Korea.

Group of International P&I Clubs

Thirteen of the major P&I clubs have now joined the International Group of P&I Clubs, and together they provide P&I coverage for approximately 90% of the world’s ocean-moving tonnage. As part of the group, each member club remains an independent, not-for-profit mutual insurance association, but shares large losses, as well as their knowledge and expertise in the maritime debt.

The group explains its ‘core’ functions on the website as: “First, the operation of claims sharing (‘pooling’) and collective reinsurance arrangements of these arrangements, second. , it acts as a forum for the gathering and exchange of views between the club and its shipowner members on matters relating to shipowner’s liability and the insurance of such liability, and three, it provides a collective voice in the industry aiming to engage with external stakeholders including intergovernmental maritime organizations, national governments, maritime regulators around the world and the shipping and marine insurance/reinsurance industries.”

How does the international corporation share the loss?

The 13 clubs in the international group pool their resources together to provide very high coverage and reinsurance at a good cost. All claims up to US$10 million must be settled by the individual club, but any losses exceeding that limit (up to US$100 million) will be divided among the 13 clubs.

The Shipowners Club further explains: “Every dollar over $100 million is paid out by international reinsurers under an arrangement known as the International Group General Excess Loss Reinsurance program. economic. About 90 reinsurers support this program, making it the largest marine reinsurance policy in the world. It provides an additional $2.1 billion in coverage per vessel, per incident, in addition to the $100 million that the clubs cover together. “

Big marine broker joins clubs

In recent years, global insurance brokerage and risk management company Marsh has pushed the International Group of P&I Clubs to be more transparent and collaborative with their P&I data. Marsh is challenging the status quo with its new P&I portal, a technology-based tool that gives shipowners “full black box” access to P&I data, including underwriting and financial information. from 13 P&I clubs. Through the P&I portal, Marsh customers can compare up to four international group P&I clubs at once and can compare their risk profile with the right club.

“The 13 P&I clubs around the world are in a unique position in that they provide liability coverage for approximately 90% of the world’s ocean-moving tonnage, which means they carry large amounts of data. huge material. But today, each club has their own data and they don’t really share it,” said Richard Adler, senior vice president, global marine practice, Marsh. “We think the clubs should start collaborating on another level and sharing that data. Why? Because the more data you have, the better your ability to analyze and prevent loss.

“In the past, clubs have said they cannot share their data, claiming that it is a privilege and that ship owners are very private individuals. That’s absolutely correct – but you can easily anonymize data, which will ultimately benefit ship owners. I can assure you that there is no shipowner in this world who does not want to improve their loss prevention. [and] being a more responsible shipowner because the fewer claims you have, the better your performance and the more points you win with your charterers and customers. It is a win-win for everyone. “