the nordic association of marine insurers 1 p&i basic understanding of risks covered, risk...

The Nordic Association of Marine Insurers 1

P&IBasic understanding of risks covered, risk assessment and the underwriting process

André Kroneberg

Gard AS


Agenda

• The P&I risks

• The Risk assessment

• The Underwriting process

• Additional liability covers


Agenda

• The P&I risks





The risk picture

Assets

Liabilities

Income


Discussion

• What P&I risks (third party liabilities) are relevant for:• A Ship owner?• A Charterer?


History of P&I

• 1688: Lloyds insurance market for ship/cargo insurance

• Early 1800: Mutual hull clubs

• Pre 1836:Limited need for sophisticated liability insurance

• Post 1836:Gradually evolving liabilities – collision/persons

• 1855:Britannia mutual P&I Club

• 2014:13 mutual P&I Clubs – 90% of world market, International Group

The Nordic Association of Marine Insurers

Mutual P&I insurance means:

• The Members are the owners of the P&I Club

• The Members of the Club are both insurers and

insureds

• There are no third party owners to earn a profit

• The Members are liable to pay such additional premium

as is necessary to balance the books or build reserves

• Members who leave the Club are still liable to pay such

additional premium unless they pay a ’release call’

9

The standard P&I Cover

• Crew and passenger

• Cargo

• Collision/Damage to fixed and floating objects

• Pollution

• Wreck removal

10


The standard P&I Cover

• High limit of cover: • Oil pollution: USD 1 BN per event• Passengers and crew: USD 3 BN per event• Additional limit available through Member’s legal obligation

to pay overspill call

• Standard deductibles:• Crew: USD 5,000.- per event• Cargo: USD 17,000.- per event• Pollution: USD 17,000.- per event • Collision: USD 17,000.- per event• Wreck removal: USD 5,000.- per event


• Liabilities arising out of injury to, or illness or death of a member of the Crew

• Crew agreement or other contract of service or employment?

Rule 27 – Liabilities in respect of crew


Rule 34 – Cargo liability

• Liabilities relating to cargo intended to be or being or having been carried on the Ship

• Legal liability for loss, shortage, damage in respect of cargo carried

• Terms no less favourable to the Member than those laid down in the Hague or Hague-Visby Rules (mandatory terms are covered)


Rule 36 – Collision with other ships

• The Association shall cover liability to pay damages incurred as a result of a collision with another ship, if and to the extent that such liability is not covered under the Hull Policies on the Ship

• RDC – 1/4, 4/4


• The Association shall cover liability for loss of or damage to any fixed or floating object by reason of contact between the Ship and such object, when not covered under the Hull Policies

Rule 37 – Damage to fixed an floating objects


Rule 38 – Pollution

• The Association shall cover liabilities, costs and expenses (excluding fines) arising in consequence of the discharge or escape from the Ship of oil or any other substance or the threat of such discharge or escape


• The Association shall cover costs and expenses relating to the raising, removal, destruction, lighting and marking of the Ship or of the wreck of the Ship or parts thereof or of its cargo lost as a result of a casualty, when such raising, removal, destruction, lighting and marking is compulsory by law

Rule 40 – Liability for obstruction and wreck removal


Rule 51 – General limitation of liability

• Where the Member or a Co-assured is entitled to limit his liability pursuant to any rule of law, the maximum recovery under a P&I entry is the amount to which the Member or the Co-assured may limit his liability


Rule 55 – Terms of contract

• The Association shall not cover under a P&I entry liabilities, losses, costs or expenses which would not have arisen but for the terms of a contract or indemnity entered into by the Member, or by some other person acting on his behalf, unless the terms have previously been approved by the Association


Discussion

• Under what type of contracts with third parties may a ship owner or charterer be exposed to contractual liabilities in excess of background law/applicable conventions?• Liner trade (containers, roro)• Spot trading (wet, dry bulk)• Offshore trade (supply and anchor handling)• In general

• What types of contractual liabilities can you think of under the various contracts?• Cargo, crew, etc.?


Agenda

• The P&I risks





Risk assessment

• Fleet◦ Number, age, type, class, flag

• Crew◦ Number and nationality, contracts

• Cargo◦ Type and value

• Trade◦ Port call frequency, US exposure, deep sea/short sea

• Owners◦ Finance, history, claims record

• Management◦ Technical and crew

• Insurance requirements◦ Terms and conditions – exclusions, deductibles, collision?

Gross incurred claims – P&I Mutual2008 - 2012

People23%

Collision23%

Goods/Cargo21%

Other/Wreck removal15%

Environmental14%

Defence4%

23


Discussion

Make a P&I risk assessment of following:

1. Cruise vessel – 2,000 passengers, Miami based, Caribbean trade

2. Container vessel – 10,000 TEU capacity, worldwide trade, deep sea

3. Offshore anchor handling vessel – North Sea trade

• Identify the most important risk factors?• Give a rough estimate of the relative difference in P&I

premium?• Make assumptions as necessary

P&I premium – the mutual formula

AdvanceCalls

DeferredCalls

InvestmentIncome

Receivedfrom

Reinsurers

BudgetIncome

Claims

Adm.expenses

ReinsurancePremiums

BudgetOutgoings

25

AdvanceCalls

DeferredCalls

InvestmentIncome

Receivedfrom

Reinsurers

BudgetIncome

Claims

Adm.expenses

ReinsurancePremiums

BudgetOutgoings

AdvanceCalls

DeferredCalls

InvestmentIncome

Receivedfrom

Reinsurers

ActualIncome

Claims

Adm.expenses

ReinsurancePremiums

ActualOutgoings

Suppl.Calls

P&I premium – the mutual formula

26

The Nordic Association of Marine Insurers

Advance Call – debited during Policy Year

100%

80%

Deferred Call – debited during following year

25%

The P&I premium call system (Gard)

27

Release calls

Release calls (Gard, Oct. 2012)

• For the 2010 policy year: nil

• For the 2011 policy year: 10 per cent



Upon payment of such Release Calls, the Member shall be released from all liabilities for further Deferred Calls and Supplementary Calls.


Overspill calls

Overspill Call

a call levied by the Association for the purpose of providing funds to pay part of an

Overspill Claim.

Overspill Claim

that part (if any) of a claim (other than a claim arising in respect of oil pollution)

incurred by the Association or by any other party to the Pooling Agreement under the

terms of entry of a ship which exceeds or may exceed the Group Reinsurance Limit.

Levying of Overspill Calls

The Association shall not levy on any Member in respect of the entry of any ship an

Overspill Call or Calls in respect of any one Overspill Claim exceeding in the

aggregate two and a half per cent (2.5%) of the Convention Limit* of that ship.

*International Convention on Limitation of Liability for Maritime Claims 1976 (Art. 6 paragraph 1 (b))


Source: International Group of P&I Clubs (www.igpandi.org)

IG Reinsurance program 2013High limits of cover available through a sophisticated re-insurance

30


Agenda

• The P&I risks





The Underwriting process – 4 steps

Pre-entry Cover

Management Renewal Post-entry

Main activities:

- Marketing - Risk evaluation- Quotations- Declines- IGA?

Main activities :

- Cover questions- Quotations- Claims- Contract reviews- Documentation updates

Main activities:

- Premium policy- Budgets- Quotations- Non-renewals

Main activities:

- Notice of cancellation- Inform mortgagee- Premium adjustments

Client Management


The application for a new entry

• Name of Assureds/co-assureds incl. capacity• The name of the ship(s), year built, IMO no., port of registry,

flag, Class, gross tonnage• Mortgagees?• Number and nationalities of the officers and crew, including

information on the terms of employment• Whether cover is required for collision with other ships and

damage to fixed and floating objects• Passenger capacity• Trading areas and planned cargoes• Date of entry

• Above basis for production of documents such as Certificate of Entry, debit notes, certificates, Letter of Undertakings etc.

P&I Renewalsgeneral increase + adjustment for loss record


The International Group of P&I Clubs

13 Member Clubs

P&I cover for approximately 90% of the world’s ocean-going

tonnage

Re-insurance function• Claim sharing agreement

Representative function• Promote shipowner’s interests

Exchange of information• Sharing information on matters of common concern

35


• Shipowner authorises Holding Club to release terms, conditions and net loss record to New Club

• New Club reviews and accept/decline entry on same terms as proposed by Holding Club

• New Club becomes a Holding Club only after a full Club year of entry (20/02-20/02)

The International Group Agreement- Change of Club


• Adding a new vessel to an existing fleet• “Free business” between Holding Clubs only• New Clubs must ask Holding Clubs for terms

• A new fleet (commercial management)• “Free business” for all Clubs• First entry with a Club – “Holding Club” status

The International Group Agreement- Competition


Agenda

• The P&I risks




39

Four main, stand-alone P&I covers (Gard)

• As per Rules for Shipowners

• As per Rules for MOUs

• As per Crew and personnel related Rules

• As per Rules for shipowners

• Extension of cover note for DTH etc.

Owner’s P&I MOU P&I

Crew Manager’s P&I

Comprehensive charterers P&I


P&I Cover for Mobile Offshore Units

History back to the early 1970s

Ship-owner Members started with drilling rigs

Non-poolable risk - need for special insurance

Floating Production & Storage Units, Drilling Rigs and Accommodation Units

Comprehensive Charterers Cover

Risks covered include:

◦ P&I risks

◦ Damage to Hull

◦ GA contribution

◦ War risks

Maximum limit: USD 750 million

41

Standard P&I

Crew/personnel

Cargo

Specialist operations

Contracts

Passenger

Additional, bolt-on liability insurance

42


Gard’s Comprehensive Carriers Cover

Standard P&I Cover

Comprehensive Carriers Cover (CCC)

Cargo (legal) liability under a TT BoL

Cargo and third party (legal) liability

Cargo and third party (legal and contractual) liability, regardless of BoL

Geographical deviations (e.g. bunkering on non-customary ports)Contractual deviations (e.g. del of port other than stated in BoL)

Delivery of cargo without BoL or similar document (subject to LOI)

Cargo liability – geographical/contractual deviation

Gard’s Extended Crew Cover

• Liabilities in respect of crew whilst on leave(e.g. compensations for death, disability, medical expenses)

• Liabilities in respect of other persons in-tort or under contract (e.g. site teams, maintenance teams)

• Liabilities to third parties due to the acts and omissions of crew and other personnel – in-tort or under contract (e.g. site team at yard with liability exposure under a yard contract)

• Liabilities to close relatives tothe crew (spouse and children)

44

Gard’s CGL and Offshore Contractual Liability - Cover for offshore and specialist vessels

• Liabilities and risks not covered by standard P&I:

◦ Specialist operations

◦ Contractual liabilities

◦ Towage

◦ Operation of subsea equipment

◦ Divers

45

“A day in the life of an underwriter”- request for insurance from a new ship owner

Good people all,

We are a newly started Ship owning company who will take delivery of 4 newly built car carriers, each with a capacity of 6100 cars, by the end of Q2 2015. As a result, we are in urgent need of taking out proper insurance for our activities carried out as ship owners. Please see below list of liability interests we wish to insure which we kindly ask for your response to:• Liability for cargo (while on board vessel) – (legal and contractual)• Liability for crew – (legal and contractual)• Liability for pollution• Liability (to third parties) for collision and striking

Also, to what extent could you include cover for the following;• Liability for cargo when not onboard vessel e.g. if we agree to take

on responsibility to transport cargo “door-to-door” incl. transport by train and/or truck and warehousing

• Liability for crew when not onboard ship but away on training course and/or excursion and/or underway to get to and from vessel to home

• Deviation from contractual route for bunkering etc.

Kind regards, Cpt. SchettinoCEOSchettino’s Shipowning Company


Questions:

1. To what extent would the P&I cover comply?

2. Any need for additional liability insurance?

3. What further information would you request for rating purposes?

the nordic association of marine insurers 1 p&i basic understanding of risks covered, risk...

Documents

pollutionthe association

shipsthe association

pi clubthe members

mutual pi clubs

standard pi covercrew

ship legal liability

britannia mutual pi

risk assessment