What are P&I Clubs:
The Clubs are associations of shipowners and charterers, owned and controlled by the insured shipowner or charterer "Members". They operate on a non-profit making mutual basis, that is to say the Members pool their resources together in order to meet losses suffered by each individual Member. The basic principle is that the contributions ("mutual premium") paid by the Membership in relation to any one year should be sufficient to meet all the claims, reinsurance and administrative expenses of the Club for that year. If there is a shortfall because claims are high, the Members may pay a pro rata "additional call" and if there is a surplus, a return may be made to the Membership, or the surplus transferred to reserve to meet losses on other years. The mutual system is therefore very different to most other forms of insurance, where the aim of the insurance company in accepting business is to make a profit for its shareholders.
The first mutual Clubs were formed in England in the mid 18th Century to cover hull and machinery losses. At that time, two hull insurance companies and Lloyds had a monopoly in the market and were thus able to force high premiums on the shipowners. To avoid this monopoly shipowners set up their own self governing hull Clubs which were able to provide hull cover on a mutual basis, within the owners' control. At the time, there was no perceived need for liability insurance as shipowners' exposure to third party claims was negligible.
However, legal developments during the latter half of the 19th Century resulted in a significant increase in shipowners' liabilities, and recognition of the need for insurance. The first liability insurance Club was founded in 1855 as an offshoot of a mutual hull Club, and this was soon joined by others. The Clubs started their activities by insuring the 1/4th liability for collisions and liability for damage to fixed objects (such as docks) which were excluded from the hull cover. This cover was called "protection" insurance. The introduction of statutory liability for loss of life and injury to passengers gave rise to a new liability which was covered by the establishment of "indemnity" mutuals.
Liability for cargo could at that time still be avoided by appropriate exemption clauses in contracts of carriage. However, legal developments in the late 19th Century resulted in shipowners facing an exposure to cargo claims, notwithstanding the terms of the contracts of carriage, and in 1874 the Indemnity Clubs started to insure liabilities for loss of or damage to cargo. Fusion of the functions of the "Protection" and "Indemnity" mutual associations gave rise to the Protection & Indemnity Clubs, which have continued ever since to adapt their cover to the developing requirements of the shipping industry.
Originally, all the shipowners in a Club contributed "calls" to claims on the Club as and when they arose pro rata according to the tonnage of the vessels they "entered" in the Club.
As the owners' exposure to claims became more complex, a need for a cash reserve to pay claims as and when necessary developed, and Members began to be charged mutual premium in advance of claims at a rate per entered ton which was fixed for the whole membership. As the shipping industry developed and became more international and more diversified, the need to charge different shipowners different rates became apparent. Thus, whilst calls usually continue to be charged at a rate per ton, the rate now varies according to the risk an individual Member's vessels represents to the Club. Relevant factors include the extent of cover required, the type and size of vessel, trade, and nationality of crew.
International Group of P&I Clubs (IG):
The Group of P&I Clubs is an unincorporated association and is governed by the member clubs at regular meetings. The Group is chaired by a representative from one of the Group clubs. The current Chairman of the Group is Claes Isacson from Assuranceforeningen Gard.
The day-to-day administration of Group affairs is carried out by the Group secretariat, headed by the Secretary and Executive Officer. The Group has offices in the City of London.
The work of the Group is carried out at Group meetings and in sub-committees which deal with a wide range of issues.