The future of P&I

Winds of change blow through Worldwide, cyclone activity trends are increasing both in quantity and intensity. Specifically, North Atlantic cyclone intensity P&I sector has visibly increased in the last two decades, with eight of the ten most active years since 1950 occurring within the last 25 years. The first truly hard P&I renewal for many years resulted in a bruising February 20 for ship owners and clubs alike. Four days later Russia invaded Ukraine resulting in many The year 2022 has proved to be an interesting new challenges as the shipping sector navigates through ever year for the P&I market and is even raising big escalating sanctions. questions about the future of the mutual system Against this volatile and rapidly changing political and economic backdrop, the P&I sector is going through some in the international shipping insurance market. major changes. Martin Cook, Divisional Director, Marine at Ed The Swedish Club will celebrate its 150th anniversary this year. Broking, raises the big questions facing the market Two clubs have announced a change in the top jobs with Dorothea Ioannou taking over from Joe Hughes at the

Under the terms of the IGA, mutual clubs are restricted in the way that they compete for each other’s business. The clubs remain effectively mono line insurers and the only way they can compete is traditionally on financial stability and service.

American club this summer to become the first ever female to head a P&I club. Jonathan Andrews will take over at Steamship Mutual for the next renewal.

The most important announcement has been the decision by North and Standard to merge. Once completed this will be the first successful merger of IGA clubs this century. This move would reduce the number of IGA clubs and therefore limit competition.

We are also seeing a continued expansion away from traditional P&I core covers with more clubs looking to the hull and machinery and the fixed premium markets.

MARKET UNDER THREAT?

P&I needs to evolve but do these changes secure or threaten the future of mutual P&I market?

Under the terms of the IGA, mutual clubs are restricted in the way that they compete for each other’s business. The clubs remain effectively mono line insurers and the only way they can compete is traditionally on financial stability and service.

Occasionally, with large enough fleets, the freedom to compete on FD&D might be enough to encourage a move for fleets looking for an immediate saving. Cash returns or not calling the full premium on any given year has allowed some strong clubs to reward their members for the success of the club.

As a broker I have seen many occasions when owners, although pleased not to pay the full premium on the previous year, still baulked at paying a general increase again the next year.

Moving into H&M has given some clubs the ability to compete against each other on non P&I covers. For some clubs, Gard for example, this has proved very successful, but, other clubs have had their fingers burned. More recently we have seen more clubs managing fixed premium facilities and these are now becoming closer to the mutuals with club security being used as a basis for the covers.

The ability to compete on fixed premium or H&M might benefit the individual club or management company, but, does it bring any benefits for the mutual market in total?

I would say not as it almost forces clubs to consider a move away from their core business into these areas or risk

“The most important announcement has been the decision by North and Standard to merge. Once completed this will be the first successful merger of IGA clubs this century. This move would reduce the number of IGA clubs and therefore limit competition.”

Martin Cook, Ed Broking

being left behind in the rush for diversity. Shipowner members of mutual P&I clubs rarely have a fixed entry and some still prefer to keep P&I and H&M separate. For this reason, there is arguably no real benefit to them.

MERGER BENEFICIAL?

North and Standard claim that their merger will benefit owners and provide more stability. This argument is potentially valid and a good argument but one can also ask whether a reduction in the number of clubs is beneficial to the wider market.

A lot has already been said about the way P&I clubs hold reserves and whether these are too high. The idea of keeping small free reserves and only calling on owners for more money when it is needed is still the philosophy of some clubs that are then criticized for not being financially secure and may fall foul of the rating agencies.

But is that does not represent the true principal of mutuality. Clubs are there to serve the owner. As mutuals, they are not supposed to make a profit but rather just break even.

As at February 20, 2021 the IGA clubs were sitting on more than $5.5bn of owners’ money. Claims costs are increasing and clubs need to keep their reserves at an acceptable level. But, in owners’ minds, this is not always easy to balance.

The clubs have a responsibility to manage owners’ money properly. If there are certain fleets generating a disproportionate level of claims compared to premium, what are they to do? Underwriting discipline is a phrase that is often used. But, if an individual club tries to exercise this by asking for an appropriate increase that fleet may move clubs. How then is that new club exercising mutuality for its membership by taking in business with poor records? Do they believe their claims handling is superior so that they can improve the record?

I am not claiming that brokers are blameless, but we serve the owners and we do not hold the pen.

Perhaps 2022 will be the beginning of some real changes in the P&I world. Just because the system works does not mean that it should not evolve.

FUTURE PERFECT?

My concern is that these changes need to be made without threatening the mutual system itself.

If the IGA did not exist it would be impossible to create it now. Will there be more mergers, will clubs fail, will diversity bring security to the market? After more than three decades in P&I the only thing I am 100% sure of is that things will continue to change, and that the clubs will evolve to face the challenges and serve the owners as they always have. Shipping needs the mutual system going forward – not least for the amazing depth of knowledge and experience within the IGA clubs which is freely available to the shipping word at large. Will the IGA look the way it does today (not counting the North/Standard merger) in five years’ time? Almost certainly not. Is there a better solution than the IGA Clubs? Not one that is easily imaginable. Despite all the changes, uncertainly and threats (both external and internal) to the mutual P&I clubs, who better to prepare, react and adapt to these challenges than the clubs and their shipowners boards? If not them then who?

“Russia invading Ukraine is resulting in many new challenges as the shipping sector navigates through ever escalating sanctions.’’

Partnership needed to tackle container casualties

Frank Gonynor, (left) Senior Claims Adviser, Lawyer, Gard (North America) Inc. and Are Solum, (below) Senior Claims Adviser, Lawyer, Gard AS present the challenges faced with container ship casualties. Collective action is needed they argue.

When discussing the challenges that container shipping casualties represent, two important factors that play their part are the speed of the market and the rapid development of the ships. Even in the current challenging times of supply disruption, container shipping markets are moving faster than ever. Ships are maximizing capacity and larger vessels are being built and delivered on a running basis. This drives the creation of such challenges.

FIRES – SIZE MATTERS

There are several ways to interpret cargo-related fire statistics. One observation is that the number of cargo fires seem to be relatively stable while the frequency of large fire casualties seems to vary as matter of luck.

But size does matter. Logically, a higher number of containers on one keel will increase the risk of one container of dangerous cargo catching fire. More cargo onboard, with higher stacks of containers, and ever larger ships, will furthermore have an impact on how dangerous situations are handled.

Cargo fires are not easy to detect and many containers on large container ships are not reachable. Crew members are not trained fire-fighters and the minimum standard of fire-fighting equipment set out in the IMO-rules (the SOLAS Convention) and ships’ safety management systems often prove inadequate.

An additional element of the ship congestion we now see in both Asia and North America is prolonged transportation which adds to the probability of dangerous goods reacting, self-heating and/or combusting as inhibitor chemicals meant to control such reactions lose their efficacy in time.

Lately, there have been a number of cases where interaction between ships on one side, and port authorities, shoreside firefighters and terminal operators on the other, have been challenging.

Much may depend, therefore, on where the given container ship is located, as well as the equipment and competent personnel available to deal with the situation.

If there is a leakage of highly flammable or corrosive liquid

Wreck removals such as the X-press Pearl (above) or the SSL Kolkata show quite clearly the damage to the environment and not only because of air pollution or leakage of different cargo substances into the ocean.