Protection and Indemnity Insurance

 

P&I insurance, also known as Protection and Indemnity insurance, is a specialized form of marine liability coverage that safeguards shipowners, operators, and charterers from third-party liabilities linked to vessel operations. In contrast to Hull and Machinery insurance, which deals with physical damage to ships and equipment, P&I insurance is specifically designed to address liabilities concerning cargo, passengers, crew members, pollution incidents, and various other risks inherent in maritime operations.

 

 

A P&I Club is an association of commercial shipowners and charterers and other associated parties, which provides protection against a number of risks inherent in industrial ship operation. The essence of P&I Clubs is that they are mostly mutual associations, where the members are both insured and insurers, contributing to claims via so-called “calls”. Whereas a shipowner’s hull and machinery insurance is designed primarily to protect the assured against losses to his vessel, the protection and indemnity insurance offered by P&I Clubs indemnifies an owner in respect of the discharge of legal liabilities he has incurred in operating his vessel.

 

 

Today’s P&I Clubs are the direct descendants of the hull clubs. Many of the practices of the modern P&I Clubs are at least parallels, and often derivatives of, those of the hull clubs.

 

After the accession of William III to the English throne in 1689 commercial shipping sailing under the British and Dutch flags suffered heavily from a prolonged war with the French. The effects of the French fleet combined with the depredations of the privateers severely depleted the reserves marine underwriters had set aside to cover war risks. At that time there was little in the way of war risks insurance written by insurance companies, so hull war risk insurances were written almost entirely by private “merchant” underwriters who conducted business at Lloyd’s coffee house in Tower Street, at various other coffee houses in the City of London and some at the Royal Exchange. Lloyd’s coffee house in Tower Street, at various other coffee houses in the City of London and some at the Royal Exchange, Lloyd’s as a society of underwriters had not been formed at that time (the first Committee of Lloyd’s was elected in January, 1772), nor was there any form of central fund available to protect the holders of policies issued by the private underwriters, The insecurity of their position caused some unrest among shipowners and merchants, whose ships and cargoes were insured in the London market, and some expressed their fears that the private underwriters in London would not be fulfil their obligations in the event of a major catastrophe.

 

Later, the infamous Smryna Fleet disaster left the ship owners disillusioned after the huge loss. Discontent grew amongst all the shipowners and they sought for alternative sources of war risks protection. Had a company market existed in strength at that time, offering risks insurance transferred to the company market, but this was not to be the case. Unable to find, what they considered, enough protection for war losses groups of shipowners in certain areas decided to form their own war risks mutual protection societies; whereby all members would contribute to make good the losses of less fortunate members. Because of their localized nature these societies became known as “clubs”. Each member of a club would pay an initial entry premium, which provided the reserve from which claims and administration costs would be met, In the event that the reserve proved to be inadequate to meet the demands upon it, the club rules allowed the managers to make “calls” on the members to make up the shortfall. The clubs only covered war risks so members continued to insured marine risks in the open market.

 

The founding of Lloyd’s as a society in 1771 did a lot to restore faith policies issues at Lloyd’s; although it was to be many years before the central fund was to be created to provide the security Lloyd’s policy holders enjoy today. It is probable that the adoption of a standard Lloyd’s policy, in 1779 (which did not incorporate a war exclusion clause at that time), added to restoration in faith.

 

Although the development of P & I Insurance introduced a wider type of Associating than was originally conceived in the formation of local protection clubs term ‘club’ was retained, in practice, when referring to all P & I Associations. Thus, irrespective of the size or reserves of an Association, the practitioner, today, today, will refer to it as a P & I Club.

 

The P & I Club system was initiated in Britain, primarily for the benefit of British tonnage; but later, the clubs rules were based mainly on English law and practice. British clubs rules did not always suit the needs of foreign shipowners; many of whom began to for their own mutual associations. Over the years many P & I clubs have been established in foreign shipping markets. The activities of foreign clubs are not necessarily confined to tonnage sailing under the national flag although there is probably a tendency for a shipowner to enter a club in his own country. 

 

 

As a shipowner, investing in Protection and Indemnity (P&I) insurance is crucial for safeguarding against the numerous risks that come with operating vessels at sea. P&I insurance provides coverage for liabilities such as damage to cargo, pollution incidents, collisions, and injuries to crew members or passengers. Without this type of insurance, shipowners would be exposed to significant financial risks that could potentially lead to bankruptcy. By having P&I insurance in place, shipowners can ensure that they are protected financially in case of unforeseen accidents or legal claims.

 

Moreover, P&I insurance offers more than just financial protection—it also provides access to expert advice and support in managing claims and legal proceedings. Shipowners can benefit from the expertise of P&I clubs who specialize in maritime law and have extensive experience in handling complex issues related to shipping operations. This additional support can help ease the burden on shipowners during difficult times and enable them to navigate challenging situations more effectively. Ultimately, having P&I insurance not only mitigates financial risks but also helps shipowners maintain their reputation and credibility within the maritime industry.

 

Claims handling in Protection and Indemnity (P&I) insurance involves a systematic process to assess, manage, and resolve liabilities arising from maritime operations.

 

Here’s how claims are typically handled in P&I insurance:

1. Notification: The insured (shipowner, operator, or charterer) must promptly notify their P&I club or insurance provider as soon as they become aware of an incident or claim. Early notification is crucial to ensure timely investigation and assessment of the claim.

 

2. Initial Assessment: Upon receiving a claim notification, the P&I club assigns a claims handler or adjuster to conduct an initial assessment of the claim. The claims handler reviews the details provided by the insured, gathers relevant information, and assesses the potential liability exposure.

 

3. Investigation: The claims handler conducts a thorough investigation to gather evidence, obtain witness statements, review documentation, and assess the circumstances surrounding the incident. Depending on the complexity of the claim, the investigation may involve collaboration with legal advisors, surveyors, experts, and other specialists.

 

4. Liability Determination: Based on the findings of the investigation, the claims handler determines the extent of liability and evaluates the coverage under the P&I insurance policy. This involves assessing the applicability of policy terms, exclusions, limitations, and legal principles governing liability.

 

5. Settlement Negotiation: Once liability is established, the claims handler engages in settlement negotiations with the claimant or their representatives. This may involve discussions regarding liability apportionment, quantum of damages, and terms of settlement. The objective is to reach a fair and mutually acceptable resolution that protects the insured’s interests while satisfying the claimant’s requirements.

 

6. Legal Proceedings: In cases where settlement negotiations are unsuccessful or liability is disputed, the P&I club may initiate legal proceedings to defend the insured’s interests. This may involve litigation, arbitration, or alternative dispute resolution mechanisms to resolve the claim through legal channels.

 

7. Payment and Settlement: Upon reaching a settlement agreement or obtaining a favorable legal outcome, the P&I club issues payment to the claimant for the agreed-upon settlement amount. The payment may cover damages, legal expenses, costs, and other liabilities covered under the policy

By following these structured claims handling process, P&I insurers aim to effectively manage liabilities, protect the insured’s interests, and uphold the principles of fairness, transparency, and accountability in resolving maritime claims.

 

It is essential for anyone interested in pursuing Insurance to know the top Protection & Indemnity Clubs operating in the world.  Below is the list of Top P&I Clubs in 2024.

 

1. Gard P&I (Bermuda)

2. North of England Protecting & Indemnity Association 

3. Assurance foreningen SKULD

4. UK Mutual Steam Ship Assurance Association

5. The Standard Club

6. Steamship Mutual Group

7. West of England Ship Owners Mutual Insurance Association

8. Shipowners Mutual P & I Association (Luxembourg)

9. The Britannia Steam Ship Insurance Association Limited  

10. Japan P & I Club 

 

 

The importance of P&I insurance for shipowners cannot be overstated. The comprehensive coverage it offers ensures that shipowners are adequately protected against various liabilities while providing valuable support when dealing with legal matters or claims. Investing in P&I insurance is not just a smart business decision but a necessary step towards ensuring the long-term viability and success of a shipping operation.