What is Protection Indemnity Insurance

Did you know that more than 90% of Commercial Vessels insure their liabilities with 'P&I Clubs'?
Indeed, the vast majority of Commercial vessel operators insure their liabilities 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.

Indeed, 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.

Why Do I Need So Much Cover - I'm Just a Charter Boat Operator?

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 pleasurecraft 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/pleasurecraft type insurance polices- large pollution losses for instance, let me give you an example:-

A potential client approached United Marine Insurance with the opportunity to arrange a quote both Hull and Liability insurance for their 'tourist vessel' which operated daily scenic tours in one of Australia's pristine waterways.

The operators were already insured, but like any business person they check the available alternatives at every renewal.

Firstly, we examined their current liability cover - the limit was AUD$10million - which on the face of it seems a lot but, hang on for one moment, the vessel carries a maximum 115 passengers averaging two trips daily of between 50 and 60 passengers - that equates to a very low, AUD$150,000 to $200,000 per passenger.

Next, we have the problem with pollution, can you imagine if this vessel sank - it was built around 1910 and has almost 100 years of oil and god only knows what soaked timbers that if under water would leak and seep pollutants into the waters for years and years, thus, the vessel (every bit of it) would have to be salvaged if it sank - then there are the clean up and salvage costs.

What about the fines - anyone living in environmental sensitive countries such as Australia, New Zealand, the UK, USA or Singapore for instance, could expect massive fines for the resultant pollution. To add one more problem, their existing insurance cover had only AUD$10,000 pollution cover.

This vessel caters to many international tourists, imagine if a few US and/or UK tourists were injured and had to be repatriated to their home countries, that would be a very expensive exercise, but even worse - any compensation claims they make against the operator would be in UK Pound Sterling and/or USD$ - that further reduces the available level of protection because their liability cover was in Australian dollars.

Hello, bankruptcy - the client had no idea of the hazards of not having P&I cover - it turned out to be only AUD$3,400.00 more than there current but, inadequate cover.

Even in countries like New Zealand where they have government funded liability contingency type insurance covers for personal injuries - the fact is, the standard covers just don't go far enough, especially if the vessel operates on the high seas.

Are P&I Clubs a Safe Option?

Yes, is the simple answer but, while P&I Clubs are recognized around the world, it is always best to have your insurance arranged by a professional service provider such as United marine Insurance.

United Marine Insurance only deals with member organisations of the International Group of P&I Clubs, based in London, UK'.

There are thirteen principal underwriting member P&I clubs of the International Group of P&I Clubs which between them provide liability cover (protection and indemnity) for approximately 90% of the world's ocean-going tonnage.

Each Group club is an independent, non-profit making mutual insurance association, providing cover for its Ship-Owner and Charter members against third party liabilities relating to the use and operation of ships. Each club is controlled by its members through a board of directors or committee elected from the membership.

Clubs cover a wide range of liabilities including personal injury to crew, passengers and others on board, cargo loss and damage, oil pollution, wreck removal and dock damage. Clubs also provide a wide range of services to their members on claims, legal issues and loss prevention, and often play a leading role in the management of casualties.

So, What Else Does 'P&I' Cover?

P&I Club coverage is generally as broad as the liabilities faced by a Commercial Vessel Operator/Owner, Ship-Owner and Charterer.

The scope of cover available from P&I Clubs are detailed in their individual rulebooks, but generally, this comprises:

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.

Please Tell Me More about P&I Clubs

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.

How Technical Does it Get?

Quite technical when you get down into the nitty gritty of it all however, for most operators of commercial vessels the application process is simplistic - we do most of it for you.
There are a couple of things, for Cargo and Work Boat Towage matters, such as the following clauses, but, we'll make sure your vessel and operations are covered in the easiest, simplest and cost effective way possible.

To ensure equal treatment of all members and maintain equitable premium levels, the cover granted by Clubs is restricted to those liabilities that are common to all the Members. Hence cover for cargo claims is on the basis that the carriage of such cargo was on conditions that gave the carrier the benefits and exemptions available under Hague or Hague Visby Rules.

Similarly, the liabilities under towage contract are restricted to customary towage (e.g. compulsory towage whilst entering/leaving port) and liabilities under indemnity contracts would be limited to Port Authority Standard Indemnities or similar agreements. Should a Member require wider cover than this then the P and I Club are normally able to accommodate the request for a suitable additional premium.