P&I Insurance – Underwriting aspectsBart Mertens, Vice President, Gard AS

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Question: What is the immediate effect of Marine Insurance (?)

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Agenda

• A twist of history: P&I in the context of Marine Insurance

• So, what does P&I mean then?

• The Risk assessment

• The Underwriting process

• Additional liability covers

A twist of history:P&I in the context of Marine Insurance

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History of Marine Insurance

• Who’s the King?

• Phoenicians

• 215 BC The Roman government

• 50BC Roman Empire

• 23rd October 1347 – Santa Clara to Majorca

• The Hanseatic League, Scandinavia and England

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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

• 2015: 13 mutual P&I Clubs – 90% of world market, International Group

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The P&I “Product”

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• Revenue growth in the marine (insurance) industry" Too much capacity is chasing too little business. There are a number of new entrants into the market who seem to be focusing on market share over underwriting and pricing discipline.” Source: The Council of Insurance Agents and Brokers, January 22, 2010 (News Release)

• Clients actively redefining added value• The role of technology• Industry loss and emerging risk influence• Is the maritime industry healthy in essence?• Beware of the Black Swan!

The P&I “Product”

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Source: IUMI 2016

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The marine risk picture

Liabilities

Property

Income

Cargo

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Exposures & Trends

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Discussion

What P&I risks & liabilities are relevant for:

• A Ship owner?

• A Charterer?

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THE SHIPOWNER STANDS FIRST IN THE LINE OF FIRE!

Exposures & Trends

The Shipowner• Personal injury or death• Loss of or damage to the cargo• Damage to property (pollution, FFO,…)• Consequential losses• Legal expenses and fines

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Exposures & Trends

The Charterer• Loss of or damage to the vessel caused by:

o nominating unsafe port or berth (physical/political risk)o properties of cargoo inferior quality bunkerso loading / unloadingo charterer’s instructions to vessel (e.g. routing)

• Personal injury or death (e.g. (e.g. Trafigura case)

• Loss of or damage to the cargo (under C/P terms – under B/L)

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Exposures & Trends

• Loss of or damage to other property: POLLUTION, wreck removal, ...) (by force of law / recourse under the C/P)

• Consequential losses of the shipowner (loss of freight, subsequent charter)

• Legal expenses and fines

• GA Contribution for bunkers / freight at risk TC

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Exposures & Trends

COSCO BUSAN at San Francisco 8 November 2007Container vessel hits the Californian Bay Bridge Civil, criminal law suits

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Exposures & Trends

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Exposures & Trends

Legislation• OPA’ 90 ,FWPCA, California oil pollution statute• Common law breach – nuisance, ultra hazardous activity• Deceptive Trade Practices, Fraud• Breach of implied contract, third party beneficiary• Post Cosco Busan: Federal and State Political reaction California: hearings, legislation, creation of cabinet postCosco Busan LAW SUITS – PARTIES• Owner• Charterer• Manager• Operator• Pilot• Master• John Doe’s: 1-100

So, what does P&I mean then?

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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’

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The standard P&I Cover

• Crew, passengers

• Cargo

• Collision/Damage to fixed and floating objects

• Pollution

• Wreck removal

2015

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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 7,000.- per event• Cargo: USD 19,000.- per event• Pollution: USD 19,000.- per event• Collision: USD 24,000.- per event• Other: USD 7,000.- per event

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Rule 27 – Liabilities in respect of crew

• 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?

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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)

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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

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Rule 37 – Damage to fixed an floating objects

• 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

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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

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Rule 40 – Liability for obstruction and wreck removal

• 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

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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

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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

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ACCEPTABLE X NOT ACCEPTABLE under standard P&I

Responsibility is based on fault Responsibility follows custody /

control Exclusions /limitations are mutual

example: neither party may claim consequential losses or punitive damages

Rights to limit preserved:« Notwithstanding …nothing contained herein shall prejudice parties’ defences and limitations …»

X Strict liability of assuredX No contributory

negligence from other party

X Limited recourse against other party

X Assumption of liability for acts of a third party

X Warranties concerning third parties - example, vessel compliance with applicable law

Applying Rules 51 and 52

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Discussion

• Under what type of contracts with third parties may a ship owner or charterer be exposed to contractual liabilities which would not be covered by P&I?o Liner trade (containers, roro)

o Spot trading (wet, dry bulk)

o In general

The Risk assessment

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Risk assessment

• Fleeto Number, age, type, class, flag

• Crewo Number and nationality, contracts

• Cargoo Type and value

• Tradeo Port call frequency, US exposure, deep sea/short sea

• Ownerso Finance, history, claims record

• Managemento Technical and crew

• Insurance requirementso Term and conditions – exclusions, deductibles, collision?

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Incident years 2010 – 2015 (Gard statistics)

People25%

Other/wreck removal25%

Goods/cargo19%

Environmental11%

Contact8%

Collision7%

Defence 5%

Gross incurred claims – P&I

* Source: DWH, as at 12 August 2015

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P&I premium – the mutual formula

AdvanceCalls

DeferredCalls

InvestmentIncome

Receivedfrom

Reinsurers

BudgetIncome

Claims

Adm.expenses

ReinsurancePremiums

BudgetOutgoings

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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

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The P&I premium call system (Gard)

Advance Call – debited during Policy Year

100%80%

Deferred Call – debited during following year

25%

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Release calls

Release calls (Gard, Oct. 2015)• For the 2012 policy year: nil• For the 2013 policy year: 5 per cent• For the 2014 policy year: 15 per cent• For the 2015 policy year: 20 per cent

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

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Overspill calls

Overspill CallA call levied by the Association for the purpose of providing funds to pay part of an Overspill Claim.

Overspill ClaimThat 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 CallsThe 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))

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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 sea3. 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

The Underwriting process

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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

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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.

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RenewalsGeneral increase + adjustment for loss record

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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 functiono Claim sharing agreement

• Representative functiono Promote shipowner’s interests

• Exchange of informationo Sharing information on matters of common concern

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The International Group AgreementChange of Club

• 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)

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The International Group AgreementCompetition

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

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

Additional liability covers

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The buck does not stop here products relevant to ship-owners and charterers

Standard P&I

Extended crew cover

Deviation cover

Compre-hensive carriers cover

XLOH/CLU

Bunkers cover

CGL

CCC or SOLRisks covered

Standard cover

• Unauthorised transhipment of cargo • Unauthorised land carriage of cargo • Prolonged and-side storage of cargo • Geographic deviation from contractual voyage • Cargo loading at a port other than that stated in the bill of

lading • On-deck carriage of under-deck cargo • Lightering of cargo amounting to deviation • Cargo carried on vessels other than as stated in the bill of

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CCCRisks covered

• Delivery of cargo without production of negotiable bills of lading or other documents

• Delivery of cargo at a port other than that named in the bills of lading • Contracting on terms more onerous than Hague-Visby standards• Ad valorem bills of lading• Vessel dry-docking with cargo on-board

• Terminal operators and owners • Ship agents • Clean-up contractors • Owners/Charterers in connection with blending operations • Shipyards • Port authorities • Sub-contractors, including rail and trucking companies • Tug owners

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Indemnities

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Liabilities beyond the ship

Standard P&I CoverComprehensive 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

Extended Crew Cover (ECR)

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The Extended Crew Cover responds to risks and liabilities in respect of crew and other personnel performing functions in relation to the operation of a ship, mobile offshore unit or other floating structure

not covered under standard P&I insurance

Liabilities in respect of crew and personnel

Owners/charterers with underlying P&I cover

Who can be

covered?

In anutshell

ECR Risks covered

Standard cover• Crew whilst being off duty (not permanently employed) or on standby duty waiting

to be ordered by the Assured to commence to serve on board a ship• Crew and personnel whilst attending or travelling to or from courses, seminars etc

at the request of the Assured whilst not under a contract of employment• Crew / personnel attending a ship not entered with the Insurer under standard P&I

on behalf of the Assured (including travel to / from the ship)• Crew and personnel remaining on board a ship not entered with Insurer under

standard P&I cover or temporarily carrying out work on board and travelling to and from a ship not entered

• Third party liabilities incurred by the crew or Personnel• Liabilities in respect of injury, illness or death of crew member`s spouse and

children• Assured`s reimbursement of fines imposed on crew• Extra costs of crew detentionCover subject to special agreement

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Comprehensive General Liability CGL

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Comprehensive insurance package to meet most of the liabilities and losses incurred by Members in connection with the operation of

offshore specialist vessels

Respond to third party legal and contractual liability offshore excluded

under standard P&I insurance

Owners/charterers with underlying P&I cover

Who can be

covered?

In a nutshell

CGL Risks covered

Standard cover• Specialist operations• Towage liabilities• Operation of sub-sea equipment and divers• Contractual liabilities• Salvage operations• Co-insurance and waivers in favour of Charterers• Property in the care, custody and control of the member

Cover subject to special agreement

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“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 strikingAlso, 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. Schettino CEO Schettino’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?

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How do you feel?

Thank you. Questions?