7/31/2019 Ec and p&I--hlpfi Sep12

1/2

Very early in August, the glad news

issued forth from the competition

authorities in Brussels. They hadformed a view on the

arrangements of the International

Group of P&I Clubs, following an

investigation, and they had concluded that

the investigation was not sufficiently

conclusive to confirm the Commissions

initial concerns that the agreements

between clubs might be lessening

competition between P&I clubs and/or

restricting, to a certain extent, the access of

commercial insurers, and/or other mutual

P&I insurers to the relevant markets.

The announcement brought to an end aprocess that began in August 2010. Like

many things European these days the

conclusion was invested with a certain

lameness. The narrative of why the

investigation began, how it was conducted,

and how the club interacted with the officials

of the Competition Directorate seems in

retrospect altogether underwhelming.

The parties certainly had a history.

Brussels has never had much of a soft spot

for shipping. It was very down on shipping

conferences in the 1980s and it has no warm

heart for the clubbiness of shipping. Europe

is the home of a lot of powerful shippers

who as a whole do not have much time in

their industrial calculus for the desires of

shipowners to earn freight in ways which

www.heavyliftpfi.com Stmb/octb 2012 49

From our correspondenteurope

P&I club probegrinds to a haltA European Commissioninvestigation into P&I clubcompetition has failed to

reach any firm conclusions.So why was the investigationlaunched, and will itsabandonment leave the clubswith an untroubled routeahead?

Sam Ignarski,our regional correspondent in

EUROPE

The European Commissionhas failed to confirm its

suspicions of anti-competitivepractices in P&I insurance.

7/31/2019 Ec and p&I--hlpfi Sep12

2/2

have an effect of smoothing out the peaks

and troughs of the shipping cycle. Moreover,

early in the 1990s, as a result of pressure

from Greek shipowners, the competition

directorate had forced upon the clubs a

number of rules that made changing clubs,at least in theory, a little easier for the

members.

On the face of it, there is plenty in P&I to

attract the attentions of antitrust officials.

The clubs share claims between themselves

and, over a certain level, by way of a

reinsurance pool bought from the insurance

market. They agree they will not underbid

each other for shipowner business already

held, and they will not give inducements to

owners to switch to them from the holding

club. The penalties for doing so are severe

the offending club loses the protection ofthe reinsurance bought by the International

Group of Clubs in respect of the ships

concerned.

The clubs cooperate on a whole range of

specialist issues and there are sub-committees

on all manner of cargoes and risk issues.

Since they pool their claims, there is a deal

of scrutiny over large claims to ensure they

are settled in accordance with the club rules,

the wordings of which are also harmonised

between the 12 clubs in the group. As an

industry, the P&I world is heavily

eurocentric, highly established, and verydurable. It is from time to time described in

the shipping press as a cartel and were it not

so peculiar, were it a mere branch of

commercial, industrial fixed price insurance,

the way it goes about its business would

have long been altered by modern

competitive realities.

Origins

It is a peculiar industry as a result of its

origins. The capital which the ocean

shipping industry puts aside for third-partyliability exposures is under the stewardship

of mutual associations, which some say are

the last living link with the 19th century.

Non-profit associations, set up under the

self-help doctrines of largely British

Victorian shipowners, the clubs cannot easily

be acquired by others or merged with large

corporate joint stock companies. They are

managed by specialist companies set up with

limited aims and they make a little capital go

a long way. This is important not only for

the financial futures of the club. The club

executive managers handle the claims, many

of which drag on for years or even decades.

They aim to break even over the long term,

setting their prices and planning their calls to

ensure that the process is as smooth as it can

investigation is the difficulty outsiders have

in joining the International Group of Clubs.

The outsiders tend to be just that. The last to

join was the New York-based American

Club. The latest applicant is the China P&I

Club. Others like the Korean P&I Club

might like to join one day. But the group is

slow to open ranks.

Outcome

The closing down of the investigation was ofcourse welcomed by the clubs and people

like the International Chamber of Shipping.

The clubs and the P&I trade were on the

whole underwhelmed by the process of the

investigation. They complained they were

put to a lot of work and expense to educate

officials who understood little and knew less

of this arcane branch of marine insurance.

The investigating team was changed,

international civil service fashion, midway

through the investigation. The new people

needed to be educated all over again to get

them up to speed. In the end it rather looksas if the whole thing ran out of puff.

So the status quo prevails. But is plain

sailing to be expected? Maybe not. The

sanctions against Iran have ushered in an era

where a key form of insurance to

shipowners is not available to all comers. In

an oil thirsty world this may end in tears.

The needs of the shipowners of the

Pacific Century many not over time be well

or adequately met from operations largely

based in Arendal, London, Newcastle,

Gothenburg or New York. There are a

dozen clubs in the International Group,

some of which are struggling to justify their

places in the modern shipping world. These

me-too operations may be the ones to

watch in our changing times. HLPFI

be made over say five or six years. They

prefer this ponderous progress to the wilder

gyrations of the insurance cycle.

Why did the antitrust authorities again fix

their eyes on P&I? The theories for this are

various. Some think it is the fringe fixed

premium P&I insurance industry that had a

word with the regulators. Insurance

companies who have a toe in the P&I water

tend to specialise in small ships or

hard-to-insure ships. They are loath to mix it

with the clubs, if only because the pricescharged by the clubs are low and the margins

of underwriting surplus are not wide.

Mutual clubs that are not part of the

International Group cannot offer the high

limits offered by the group and cannot

enforce any price discipline when in

competition with them. The largest and

most estimable of the fixed premium P&I

providers, British Marine, is nowadays,

following its demutalisation and sale, a part

of the QBE insurance company. A large

proportion of its staff in recent times

decamped to start up an operation calledLodestar, a development that ended in

court actions and injunctions to delay its

start date. There are much easier ways of

earning a handsome premium surplus than

fixed P&I insurance.

Another reason mooted for the

The needs of the shipowners of

the Pacific Century many not over

time be well or adequately met

from operations largely based inArendal, London, Newcastle,

Gothenburg or New York.

Stmb/octb 2012 www.heavyliftpfi.com50

From our correspondenteurope

Hamburgs multipurpose terminal.