Shipowners' responsibility: the P&I Clubs

P&I Clubs: Historical background

The current Protection and Indemnity Clubs (P&I) are the remote descendants of marine insurance associations, which used to be widespread during the 18th century. The latter emerged when marine insurance companies, the once masters of the market, were no longer able to come up with satisfactory conditions for ship coverage.
The shipowners, therefore, had to set up specialized associations entrusted with the coverage of their liability, which were non-insurable risks on the traditional markets.

In 1855, the first club bearing the name of “Shipowners' Mutual Protection Society” came into being. Although P&I Clubs [4] were initially founded in the United Kingdom, they are thriving now in Scandinavia, USA and Japan. Some of them, which were initially set up in the United Kingdom have transferred their businesses to the tax-haven countries like Bermuda and the Luxemburg. A large number of these latter belong to the “International Group of P&I Clubs”.

The success of mutual insurance associations peaked to such an extent that nine out of ten ships are members of P&I Clubs.

P&I Clubs: How do they operate?

P&I clubs operate as mutual insurance firms. They do not have a capital underwritten by shareholders. Members stand together and may resort to extracontributions to face possible technical losses. Their status as a non-profit institution makes it possible for them to provide their members with advantageous ratings.

Guarantees covered by the P&I Clubs

P&I Clubs offer guarantees against shipowners'risks. Generally, the covered risks include liability insurance for transported goods and liability resulting from:

• Death and physical injuries suffered by seamen, passengers and third parties.
• Collisions
• Pollutions
• Grounding and wrecking
• Tugging operations
• Damage caused to fixed and floating objects

Finally, Protection and Indemnity Clubs cover the shipowners' civil liability towards stowaways and people rescued at sea.

The role of P&I clubs

P&I Clubs are the only organizations which offer the usual services of a traditional insurance company as well as legal counseling and expertise in disaster settlements. The shipowner is backed and assisted by his club when facing any suffered losses. He is provided with technical services along with high-quality counseling.

International Group of P&I Clubs

The International Group includes a certain number of P&I Clubs ¹. It is in charge of:

• Organizing insurance and reinsurance of member clubs
• Stand for the interests of member shipowners
• Providing interactive information forums

The Group is entrusted with costly reinsurance contracts.

Functioning of the P&I Clubs

Each member club of the P&I International Group is independent, and is managed by a committee made up of club-elected members. It is this committee that is endowed with decision-making powers as well as the elaboration of the club's strategies. Besides, the committee may delegate certain tasks and responsibilities of its choosing to the managers of the Group that belong to it.

The member clubs of the P&I International Group have brokered an agreement (the pooling agreement) to mutually insure serious risks. This convention defines the risks to be shared, the amounts to pay and the mechanisms through which these sums are shared between member clubs.