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| "P&I" stands for "Protection and Indemnity" and is the reimbursement ("Indemnity") and defence ("Protection") for shipowners' and charterers' liability and some non-commercial losses arising from the operation of a ship. This class of insurance is distinct and separate from hull insurance, loss of hire/freight insurance, disbursements insurance, strike insurance, war risk insurance or defence cover (i.e. Freight, Demurrage & Defence/legal expenses insurance). The reason most shipowners and many charterers – irrespective of the area and trade their vessel is engaged in – have such insurance cover is because: | ||||||||
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Those having such insurance have it either from mutual insurance associations (called mostly "P&I Clubs") or from insurance companies. Today's P&I Clubs are the remote descendants of the many small hull insurance clubs that were formed by shipowners in England, Scandinavia and Germany in the 18th century. The decline of hull clubs in the first half of the 19th century was due in significant part to dissatisfaction with the scope and cost of the contemporary hull insurance in the commercial insurance market. For example, at the time, the usual cover for claims by other ships and their cargo for damage caused in collision excluded one fourth of such damage, as a matter of principle, and was limited to the insured value of the ship. As the values of cargoes rose, cargo owners and cargo insurers became more intent on recovering their losses from shipowners. The steadily increased burden of legal and contractual liabilities towards third parties coupled together with their growing awareness of the inadequacy of the insurance cover that they did have, led shipowners to create new mutual insurance associations. Defensive cover for the risk of liability for loss of or damage to cargo carried on board an insured ship was first offered by a so-called "Protection Club" in 1874. Thereafter, many of these Clubs added an "indemnity class" to provide the necessary real financial reimbursement for such liabilities. Today the distinction between "protection" and "indemnity", the two elements of such liability insurance cover, has virtually disappeared within P&I Insurance. Over the past few years the P&I Insurance world has seen some dramatic changes. Although the traditional English and Scandinavian P&I Clubs formed their own International Group of P&I Clubs (controlling more than 90% of the worldwide ocean going tonnage), shipowners have again rebelled against their continuing financial exposure. In response, "fixed premium" insurance facilities have been created by insurance companies or groups/pools of insurance companies. One of these is the Hanseatic P&I. The Hanseatic P&I offers similar international cover as the P&I Clubs, but at fixed costs. Its fixed premiums are in stark contrast to the traditional "Club" system of Advance Calls at the beginning of the policy year, Supplementary Calls charged during the following policy year in arrear (once the additional claims and costs and the cash demand for the year have become clear) and often very high Release Calls upon leaving the Club. The advantage of fixed premiums is that the insurance premium figure given to the shipowner at the moment when he buys the insurance represents his full and final insurance cost. In other words, shipowners can fully and reliably budget insurance costs without potential negative surprises in the future, such as being suddenly asked for (sometimes heavy) additional retrospective insurance "premium calls". |
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