History of the P&I Market

Mutual Societies

The P&I Market started in the mid 19th century with the evolution of Mutual Societies who covered liability risks. These risks could not be covered within the commercial market at the time, i.e. Lloyd’s, as it often involved exclusion to all risk policies that existed at the time i.e. cargo, pollution, fines, crew claims, personal injury etc.

There used to be many P&I associations who tended to cater for specific types of vessel or for shipowners in a particular geographical area. Some of these continue to this day e.g. The Shipowners P&I club who look after small craft and the Japan P&I Club who look after vessels in the Japanese market. Other mutual Associations have lost their original ethos, e.g. the Swedish Club now looks after business from most parts of the world and has also moved away from their core, with questionable results on hull, charterers, energy etc. The irony is, that these are often funds that have been generated from the Mutual itself.


The International Group of P&I Clubs

Most P&I associations have lost their roots. Especially Members of the International Group (IG) of P&I Clubs. This is a Industry body that promotes the interest of the 13 IG Clubs who make up the International Group. IG Membership does not bestow any form of quality stamp or infer that they are better than others; indeed one of the most well established and well run P&I Clubs, the Gard, has to share membership with Clubs such as London or American. The IG as well as being a trade body arranges the central reinsurance contracts without which under capitalised P&I Clubs such as London and American would not be able to operate.

The IG or International Group buy reinsurance from the commercial market from a base of USD 10 million to around USD 3.5 billion. Without the Lloyd’s and commercial market the IG simply would not be able to operate as they are not capitalised like respected Insurance companies and without the RI contracts that the IG buy there is no way they could operate. The IG has members who generate less than USD 90 million all the way up to those that generate USD 750 million in income; it is not hard to see a situation in years to come where the best end of the IG or International Group, break away from the end the ones that have the potential to bring the system crashing down i.e. the smaller badly poorly run ones.


The future of the P&I Club

Consolidation is properly the only thing that will save the smaller Clubs but many think why would you run the risk of consolidating with an organisation such as the London Club where you have little idea about the quality of the membership or the way the underlying business is run. The biggest factor against consolidation is the vested interest of the managers, hardly in the interest of mutuality. The weakest Club managers are likely to disappear and also bear the brunt of most job losses that will emerge from a consolidated market.

The rush to join the fixed premium market for small ships, energy, hull, charterers at the expense of the Mutual Members funds is clearly not in the interest of the mutual members but purely generated by the self interest of the managers. If S&P and Club Boards were performing their duties correctly there would be much more scrutiny on whether this actually benefits the Mutual members.

The International Group or IG is likely to see some serious changes over the next five years. It may  cease to exist entirely or it may reduce in size to six to eight super clubs, this will at least weed out the badly run and undercapitalised International or IG P&I Clubs.


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