Marine P&I - The View

Christopher Brown, Chief Underwriting Officer – UK P&I Club:

“The Pool continues to be efficient and work well for shipowners. We firmly support the Pooling mechanism as a means of sharing most large claims, essentially at cost, before placing the Group’s commercial reinsurance arrangements.”

“It is true, however, that the combined cost of nearly USD1.2 billion falling on the Pool for the three years 2018-2020 was higher than other recent years. This may not be a long term trend as claims of this size remain rare, making conclusions over frequency in the short term difficult. There is also no causal link or common thread between events like the grounding of the Wakashio, fire on the Maersk Honam or wreck of the Golden Ray.”

“There is some evidence of inflation in the severity of claims and a wide range of factors have been suggested from technology to the size, and therefore value, of the ships to the increasing focus on ensuring sustainable practices in the event of an incident. However, more time is needed to properly assess and understand these potential inflationary factors.”

Christopher Brown, Chief Underwriting Officer – UK P&I Club:

“The traditional loss record has become less useful as the significance of larger losses has become more important within the overall economy of the Clubs. Ten years ago, claims with high frequency but low severity made up the majority of the overall claims cost for the year. These claims were relatively predictable and historic record was a good indicator of likely future cost.”

“Today, a small number of less predictable large losses make up the majority of the Club’s claims cost for the year. This means the Club is increasingly focused on calling sufficient premium to cover large claims from the Membership as a whole. The result is that many members need to contribute premium towards claims they might have rather than claims they have had.”

“In adapting to this new reality, the UK Club uses risk models in parallel to traditional loss records. The modelling now looks beyond the loss ratio and incorporates port state data, AIS movement data, and models the risk of larger losses. Improving this modelling, and pulling in external data sets, is necessary to refine underwriting practices and highlights the appetite for different risks.”

Christopher Brown, Chief Underwriting Officer – UK P&I Club:

“The UK Club is already on record in stating that the Ever Given is not an existential moment for the P & I sector. Rather in financial terms it is a manageable P&I claim, albeit one that will comfortably exceed the 2021 policy year pool retention. The sums demanded are significant, but many of the claims are not P&I in nature.”

“The Club is also on record in acknowledging that the Egyptian authorities are entitled to compensation for their legitimate claims arising out of this incident. While the manner in which the claim has been pursued is concerning, with the ship and cargo impounded in support of a claim which exceeds the value of the ship many times over, the Club is committed to reaching a prompt resolution of the matter, one that is also fair and proportionate to the incident, and which maintains the shipping community’s confidence in the Suez Canal. At the present time the Club is engaged in intense but constructive discussions with the Suez Canal Authority and we are optimistic of a satisfactory conclusion in the not too distant future.”

Christine Kershaw - Lawyer/Mediator, Director of M C Kershaw & Co Ltd - Consultant to Shipowners:

“COVID-19 has definitely brought new liabilities to the forefront of the marine industry’s minds. As a result, it is natural for insurers/flag states/class and ports to consider the ramifications. For instance, what happens when the crew of a vessel has COVID? Often ports will not permit the entry of the vessels or the transfer of the crew. If they do, then extensive measures have to be taken to ensure that the vessel is completely sanitised, to enable pilots/stevedores to come on board. This is reasonable, but expensive, costing in the region of USD100,000 for some Chinese ports.”

“It is also likely that many countries will introduce regulations to ensure that the whole crew of ships and cruise liners are vaccinated. This could be difficult, especially as in some countries, this may not be possible, as there are insufficient supplies of the vaccines. In addition, regulations are being brought in concerning crew changes. For example, this has occurred in Hong Kong, which released a mandate stating that only crew members that have had a Chinese COVID-19 vaccine are able to be changed. One can imagine the difficulties this will cause and if it were to be breached, the fines that would be levied.”

“It is definitely a changing world, which will affect shipowners worldwide for many years.”

Christine Kershaw - Lawyer/Mediator, Director of M C Kershaw & Co Ltd - Consultant to Shipowners:

“The bigger the ships, the larger the problem! Unfortunately, this is evident by the recent incident involving the MV Ever Given in the Suez Canal.”

“The Owners of very large vessels are now limited to the ports that can facilitate them. Often the vessels will go to ports that were never designed to take vessels of that size. As a consequence, whilst manoeuvring, it is possible for them to go around. If this were to occur, then the Owners liabilities could be extensive, such as, but not limited to, damage to the vessel, cargo, crew, oil pollution and consequential loss. Owners could also be faced with contracting with salvors under LOF or by agreement - costs of which are always high. Also, salvage/GA security has to be obtained from thousands of cargo interests - this can take months to resolve, thereby delaying delivery of cargo and causing additional expenses to be incurred.”

“In addition, containers are being stacked higher and higher on deck. This in itself is causing problems, as if there were a failure in calculating the stowage and/or the securing stanchions fail, the containers may fall over board and/or destabilise the vessel. As a result, insurance premiums are likely to increase substantially.”