Underwriters, P&I clubs and Vetting of a Ship

 

The marine underwriters

The wording marine is a bit misleading as the word means maritime in the world of underwriters and insurance companies. In the maritime world the money which is involved with the ships loss or the cargo loss or the third party loss are very high. To cover a high amount of money normally you need a group of people or investors.

In former days a group of rich people like lords stands for this risk and they each underwrite the contract with the merchant. For this, the owner of the cargo or ship pays a premium to those underwriters. The height of this premium depends on the risk taken. Higher risk means higher premium.

Nowadays the group of rich people or lords are Marine Insurance companies or P&I clubs

The underwriter will investigate the risk of the project to set the percentage of the premium. They will find bankers or insurance companies to underwrite the contract and will investigate if something happens with the ship or cargo. In the contract is exactly written down what the risk is and which risk is covered.

 

 

History of marine insurance and classification societies

The history for insuring ships and cargo goes back to medieval Italy. But in 1760, Edward’s Lloyd started his coffee house in the business center of London. He was attracting both the underwriters as the brokers to his coffee house with proving space to negotiate. A list was present, in which the ships were listed and ranked. This Lloyd’s list became an important list in the underwriters world.

The first classification Society Lloyd’s Register was founded as a tool for the underwriters. Lloyd’s started with the Lloyd’s list and on this list are the ships ranked with stars.

In the second half of the nineteenth century the owners like to prove the underwriter that they have a well maintained and seaworthiness ship. This happened also with a star ranking. In return the owner had to pay a lower premium to the insurer. At a certain point the star system became certificates which were valid for a longer period but with regular intervals of inspection.

In transition period in the nineteenth century the classification society was actual working for two parties. Both the underwriter as the owner. The later half of the nineteenth century a combination of owners started with their own classification societies.

Nowadays the insurance and the classification should be seen as two different things. But still after a damage a insurance company will ask what the classification society thinks about a certain approach of repairs after a damage. The origin is of course that every repair has to be approved by the classification society. And to repair a damage two times is not good for any party.

P&I (Protection and Indemnity)

A P&I club has members and operates according a “not for profit” principle and therefore it differs from a normal insurance company. The members of the P&I club are both the insurers as the insured. This means that only ship owners can be a member and the P&I club is more interested in the hull and machinery of the ship. The premium is not a premium any more and becomes a memberships fee. This fee has more fluctuation and depends on how many claims the members have. To become a member a P&I club will have a list of question for the new members like type of ship, gross tonnage, route, the flag State and the classification society.

After an accident the underwriter will send their own or hired surveyor to do an analyse of the cause of the accident, but will also negotiate with different docks and/or repair companies

The P&I club will have their own rules, which can be compared with a contract. The club have the following 5 categories insured:

1. Cargo loss
2. Crew, loss of life, repatriation, mutiny
3. Hull and Machinery, Collision, wreck removal
4. 3rd party, damages to docks, quays, buoys,fines and penalties
5. Pollution

This means that there are different kind of surveyors needed to invest different kind of accidents. But also to accept the underwriting, a surveyor of the P&I club will visit a ship and has his own check lists

The vetting of tankers

The vetting of tankers is used to determine the quality of a tanker. OCIMF (Oil Companies International Marine Forum) developed in 1993 SIRE ( Ships inspection report programme), which is a tanker risk assessment tool. This widely used by oil companies. The inspectors are former captains from tankers. Tankers have besides the vetting inspectors additional inspections. As soon as the tanker passes the 10 years, class, flag and port state, P&I clubs will extend the scope of survey.

Conclusion and wrapping up

During this 10 short lessons, we have seen the different organizations which play a role in the law at sea. You have seen that the flag is the most important part for this role and that all the flag states visit the conventions, organized by the IMO. The conventions will be turn into law after ratification of the flag states. The classification societies has its own set of rules but is often the recognized organization who will conduct the surveys for the flag state. The control mechanism are auditors and port state.