P&I Club in shipping - Role, Responsibilities & Function

P&I Club in shipping - Role, Responsibilities & Function 

What is a P&I?

1. P&I Insurance is used for the third-party claims towards the ship owners.
2. Ship owners provide a service of carrying the cargo of the shipper. While providing this service, a ship owner may be subjected to a number of claims from third parties.
3. These claims could be damage to the jetty, pollution from the ship or even the fines to the ship from authorities.
4. Ship owners need to insure for all these third-party claims. P&I clubs provide insurance to the shipowners for all these claims, insure their third-party risks.
5. Also known as Protection and Indemnity Club.
6. P&I Club is a non-governmental, non-for-profit mutual insurance association providing marine insurance to its members.
7. These members include shipowners, operators, charterers, and seafarers under the member companies. Protection covers safe working of seafarers while indemnity covers any loss compensation.
8. Under these ‘clubs’, like-minded shipowners pool their resources to insure their third-party risks,

What are the functions of P & I Clubs?

1. Ensure ship owners and operators against third-party liabilities not covered by hull and machinery policies obtained.
2. May subject owners vessels to inspection before entry into the club and during membership
3. Produce lists of correspondents and reliable lawyers and surveyors
4. Issue handbooks containing club rules and lists of correspondents, which are very useful to master seeking advice and assistance win in any kind of trouble.

Why P&I?

 

1. While traditional marine insurance companies provide “hull and machinery” cover for ship-owners and cargo cover for cargo owners, a P&I club provides cover for open-ended risks that traditional insurers are reluctant to insure.

When does the P&I Club get involved?

1. Illness, injury and death of crew, passengers and other third parties onboard
2. Stowaways, deserters and refugees
3. Collisions
4. Damage to property
5. Pollution
6. Wreck removal
7. Cargo loss and damage
8. Fines
9. Costs incurred in criminal proceedings
10. General Average
11. Salvage

A. List of International P&I Clubs

With an observer status at the IMO, the London-based International Group of P&I Clubs is comprised by 13 global P&I Clubs that provide marine liability cover for approximately 90% of the world’s ocean-going tonnage.

1. The Swedish Club
2. UK P&I Club
3. Japan P&I Club
4. Gard Club
5. Britannia P&I Club
6. The London P&I Club
7. The American Club
8. Ship-owners Club
9. North Club
10. Steamship Mutual
11. The Standard Club
12. Skuld Club
13. West of England Club

B. International Group of P&I Clubs?

The high limits of cover provided by the IG of P&I Clubs exist due to the unique risk sharing system behind mutual insurance policies in which the combined resources of the world’s major ship owners can be called upon to respond in times of greatest need

C. Premium for an individual owner

Each P&I club sets a premium for an individual owner reflecting:

1. The risks against which he requires cover
2. His fleets gross tonnage
3. His fleet exposure to risk
4. Other factors including the likelihood of significant claims in the coming year

D. A new shipowner entering into the club

The P&I Club will assess all the factors before deciding if it is OK to include this ship owner and this ship into the club. Some of the factors the club would be looking for are

1. Suitability of the cargo spaces for the intended cargo
2. Proficiency of the crew
3. previous track record of the ship owner and/or Ship managers
4. Standards of classification society

 

E. ‘’Certificate Of Entry’’

 

1. Members ships entered may be subjected to random ship inspections concentrating on the management of the vessel. If failed, a more intensive condition survey by independent surveyors may be called by the club’s managers. An owner who fails to keep his vessel in the condition required by the club’s rules may be expelled from the club.
2. Issue each member vessel with the ‘certificate of entry’, which should be kept by the master

 

F. P&I Fund Management?

P&I clubs maintain a fund and ask the ship owners to contribute to this fund.

1. when a new ship owner joins the club or
2. when the fund money goes down because of the claims settles.
3. Annually or as per the rules of the P&I Club.

All these requests to the ship owners for the payment are called “Calls”.

G. Type of ‘’ CALLS’’

1. Advance calls (Paid when a ship owner joins the club or at the beginning of year)
2. Supplementary calls (Paid when the funds have gone down because of claims paid )
3. Release calls (to settle the account of a ship that is sold or scraped or ship owner leaves the P&I club)

H. Deductibles ?

 

1. Deductibles in a claim is a common practice in all kind of insurances.
2. The deductible is the pre-set amount deducted from the insured loss.
3. Let us say that a P&I club has set the deductibles for claims arising from damage to the jetty as USD 5000.
4. Now if the claim towards the ship-owners for one of such incident is USD 30000. Then the P&I club would pay USD 25000 after USD 5000 as deductible from this claim.

I. Income part of the P&I club

 

The income part of the P&I club include

1. The Annual contribution from the members.
2. Contribution of new members or new ships entering the club
3. Interest/Profit earned on the investments of the fund

 

J. Expenditure Part of the P&I club

 

1. Payments made as claims settlements. (The major chunk of which goes in the settlement of claims against its members.)
2. Management costs (Management cost would include the salaries of the employees and rent of the offices etc.).
3. Reinsurance costs (P&I clubs also reinsure some of its risks. The cost of such reinsurance also comes under expenditures.)

 

If a seafarer knows how the P&I club functions and more importantly that they are on our side, dealing with situations becomes easy.