Shipping Industry

At present a group of the world’s largest P & I Clubs operate within a framework called the International Group Agrement (IGA).  Under the IGA, each Club is responsible for paying its own claims up to a maximum per claim of US$1.2 million which is referred to as the Club retention.  Clubs are free to re-insure part of their own retention should they so wish.  Any claim in excess of US$1.2 million is then pooled with the other members of the IGA thus spreading the risk of such claims over a very large part of the international shipping industry. The International Group by virtue of its size has been able to place very favourable market re-insurance for the pooled claims. In the event of a claim exceeding the upper limit of market re-insurance the cost would fall back on the Clubs, but nevertheless the unlimited liability principle remains in place. The Clubs assess their premium income requirements, or calls, using criteria broadly similar to those of hull insurers; they will consider the type and size of ship, the quality of the ownership and management, crew nationality, anticipated trading pattern and in particular the claims record over previous years.  Since there is no limit to the liability based on value, the rating is more closely related to the type of risk envisaged.  For example, a higher rate would apply if the ship intends to carry general cargo (with a higher risk of cargo claims) as compared to operating in the bulk trades. Again, like hull insurance, the owner will bear a deductible for each and every claim and the size of deductible will be taken into consideration in fixing the call rate.  The call rate is usually expressed as so many dollars or cents per gross ton for the ship in question.  As claims settlements are frequently spread over a considerable period, there is no need for the Clubs to be put fully in funds at the outset.  Accordingly most Clubs endeavour to assist members’ cash flow positions by levying an Advance Call for a limited proportion of the estimated total requirement for the year in question.  Thereafter, Supplementary Calls relating to the year will be made at a later stage.  The size and timing of Supplementary Calls will be a matter for the Club Directors to decide as will the length of time policy years remain open, but 6 to 7 years is probably the norm.