P&I Clubs 

‘P&I Clubs’ [Protection & Indemnity Insurers]
P&I Clubs are independent, non-profit making mutual insurance associations, providing cover for its Ship-Owner and Charterer members against third party liabilities relating to the use and operation of commercial vessels. Each club is controlled by its members through a board of directors or committee elected from the membership. Approximately 90% of the world’s ocean-going tonnage is covered by thirteen principal underwriting member clubs of the International Group of P&I Clubs (UK).

Protection and Indemnity Insurance
Broad type of marine legal liability coverage specifically designed to cover commercial vessels operating on the high seas as many ship owners desire the much broader coverage offered by protection and indemnity insurance since it offers a worldwide coverage and includes protections against liabilities arising from a broader range of risks then standard marine liability covers offered to pleasurecraft; such as,

Injury, illness and death of crew, passengers and stevedores;
Repatriation of crew and substitute expenses;
Diversion and other expenses incurred in landing refugees, sick persons and stowaways;
Collision liability;
Excess collision liability;
Pollution by oil or other substances;
Property damage;
Towage contract liabilities, and liability under other contracts and indemnities;
a Cargo loss, shortage and damage;
Unrecoverable general average contributions;
Salvor's expenses under the 1980 Lloyd's Standard Form of Salvage Agreement;
Fines, certain legal and other costs;
Wreck removal;
Excess War Risks liability.

Approximately 90% of Commercial Vessels insure their liabilities with 'P&I Clubs' by becoming a member of a Protection and Indemnity Club 'P&I Club' which cover them specifically for liabilities arising out of the management or navigation of their commercial vessels. Commercial marine is vastly different to pleasure boating where standard third party public liability cover is available from most general insurance companies with limits from $1million to $20million - whereas, Protection & Indemnity cover starts at $100,000,000 [USD] and is primarily issued by London based P&I Clubs.

P&I Clubs are the successors of similar named associations founded in the United Kingdom and the United States of America during the 19th and early 20th centuries with the primary intent to standardise marine liability cover for ocean crossing vessels including their cargo and crew.

For one thing most ordinary marine liability insurance just doesn't offer the range and level of cover really necessary to ensure a commercial vessel operator is completely covered.

While most pleasure craft insurances are sold by local insurance companies and governed by local insurance laws [the laws which apply in the country where the vessel is flagged, operated and/or the management is located] commercial marine insurance can be purchased from and provided by non-local insurers, commonly referred to as International Insurance Companies.

In many instances, liabilities that can and do arise from the operation of a commercial vessel are excluded under standard marine/pleasure craft type insurance polices- large pollution losses.

In nearly all circumstances, an owner will be offered cover on a mutual basis, the concept of mutuality being fundamental to the operation of P&I Clubs.

In broad terms, this means that in any one year the premium collected from the members should be identical to total expenses and claims arising out of incidents during the same period. In this way, the Club makes neither a profit nor loss.

To achieve this result it is possible that members may be required to pay a supplementary premium during the course of a policy year in the event that claims exceed the premium initially collected.

By tradition, the major proportion of all Club member entries are renewable at the same time each year - Noon, on 20th February, and any new entry attaching mid-year has an initial period of insurance up to the next 20th February, thence 12 months although this mainly applies to Ships and large vessels of similar nature.

Whereas, for smaller commercial vessels (e.g. fishing boats, passenger charter vessels etc'), P&I Clubs are now becoming more flexible and allowing application/joining dates to mirror those of the hull insurance.

In Club jargon, premium is termed "Calls", thus at commencement of the policy year the Club will make an 'Advance Call' on its members. Often, the advance call is only an installment premium, and at the same time the Club publishes its estimate of the additional call which they anticipate will be necessary to balance the accounts for that year with the actual amount being determined some six months after the end of the policy year.

Clubs are normally able to maintain supplementary in line with estimated because of their reinsurance arrangements, the structure of which allows them a degree of flexibility in assessing calls.

Protection and indemnity insurance, commonly known as P&I insurance, is a form of marine insurance provided by a P&I club. A P&I club is a mutual (i.e. co-operative ) insurance association that provides cover for its members, who will typically be ship-owners, ship-operators or demise charterers. Unlike a marine insurance company, which is answerable to its shareholders, a P&I club is the servant only of its members.
 
Both P&I clubs and conventional marine insurers are governed by the provisions of the Marine Insurance Act 1906. Marine insurers provide cover for known quantifiable risks, mainly Hull & Machinery insurance for shipowners, and Cargo Insurance for cargo owners. By contrast, P&I Clubs provide insurance cover for broader indeterminate risks, such as third party liabilities that marine insurers are loath to cover. Third party risks include a carrier’s liability to a cargo-owner for damage to cargo, a ship’s liability after a collision, environmental pollution and war risk insurance; (although some marine insurers are also prepared to cover war risks).
 
It follows that any given cargo may be insured twice: the shipper/cargo-owner will take out conventional cover, and the carrier will have P&I cover. If the cargo is lost or damaged, the cargo-owner should first make a cargo claim against the carrier; but the latter may avoid liability because either (i) he did not cause the loss, or (ii) the Hague-Visby Rules grant exemption from liability . In such a case, the cargo owner will claim against his own insurer. If the cargo-owner fails to claim first against the carrier, but claims against his own insurer, the latter (having reimbursed their client) will, through subrogation, be able to pursue the claim in their own right against the carrier.
 
Marine insurers charge a premium, which guarantees to the assured full cover during the validity of the policy; but P&I insurance is financed not by premiums but by “calls”. Club members contribute to the club’s common pool, out of which claims are paid. If the pool is insufficient, the club members will be asked to pay a further call; but if the pool is in surplus, the club will ask for a reduced call the following year, or may even make a refund to members. (Only ship operators with a sound reputation will be allowed to join a P&I club; and any P&I club member who incurs reckless or avoidable losses to the club may be asked to leave)
 
Whereas a marine insurer will, on average, pay out £70 for every £100 received in premiums, a P&I club seeks to run as a non-profit-making business. Curiously, the largest P&I club, Norway’s Gard, manages to combine mutual P&I business with conventional marine insurance. Should the Rotterdam Rules come into force, third-party liabilities will increase; and this may result in conventional insurers losing more and more business to P&I clubs.
 
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