Marine Insurance For Associate Business Production - Overview Of P&I Club

Discussion

Describe about the Marine Insurance for Associate Business Production.

“Protection and indemnity insurance (P&I)” is one of the types of insurance in mutual maritime that is offered by a club of P&I. It is provided by the club members to cover the open- ended risks that the traditional insurers were not interested to provide to the ship owners like marine insurance and cargo cover. P&I provide the protection and reimbursement for the liability of the ship owners including the coverage of non- commercial or non- financial losses arises from the ship operation (Pearson and Doe 2015). This insurance class has been formed to provide the financial safety net, additional assistance to deal with the claimants and loss challengers and to provide more powers to balance the potential hardships. Initially, the British ship owners formed the club in the 18^th century, which was set up in each case from the different geographical area. Further, during the year 1855 the ship owners formed the association for protection known as “Ship owners’ Mutual Protection Society”. The association was formed to operate like marine insurance club in order to cover the liabilities, financial loss, non- financial loss including the loss of life (Depré, Reniers and Zamparini 2016).     

Purpose and Function of Ship owners’ P&I Club

One of the major purposes of the P&I Club is to cover the liabilities of the ship owners that the traditional insurers were not able to cover. The club was formed to operate on the basis of mutual agreements as well as on non- profit basis to meet the claims of losses incurred by the ship owners (Smith 2015). The members of the association aimed to call and collect the money every financial year in order to meet the costs and expenses of operating the association business activities including the amount of claims related to each of the year. Initially, there were thirteen clubs of P&I co-operating in the two significant areas for sharing the amount of claims among each other as well as buying the reinsurance based on the collection. Such activities assist the association to provide cover on loss incurred by the ship owners more than it was offered in the commercial market (Gandorfer, Hartwich and Bitsch 2015). Additionally, the association was formed to perform with the common interest with respect to the legislations, principles of the shipping contracts and other regulatory frameworks to provide the insurance activities. The P&I club functions to provide the insurance to ship owners for the liabilities that include the loss of life or personal injury to the seamen, third parties or to the passengers (Zhu and Zhang 2015).

The purpose of the association is to provide coverage the liabilities for stowaways or people saved at the sea and the liabilities with respect to the collisions and groundings. Another purpose of the P&I club is provide coverage on the liabilities or loss from the damage to the fixed as well as floating articles, liabilities from the pollution or liabilities from the wreck removal. The purpose and functions of the P&I association includes the insurance on liability and loss to the cargo of the ship owners (Davies 2015). The activities of the club involve the reimbursement for the loss due to oil spills including the services of finding the experts or contractors for the legal advice and payment of claims. With respect to the oil pollution or oil spills the club of P&I undertook the activities of insurance guarantor considering the regulations of “Oil Pollution Act” as well as in accordance with the “Civil Liability Convention Certificate”. Apart from that, the function of P&I association also functions as a source of funds because many ship owners are not able to afford the required funds to get over with loss from pollution or other hardships (Sarrabezoles, Lasserre and Hagouagn’rin 2016).

“Protection and indemnity insurance club” provides number of cover to the ship owners along with the coverage of financial loss. The principles types of risks that the association covers include the protection and reimbursement to the third party, ship owners and operators for loss during the hardships. Coverage of liabilities for the loss of personal injury is provided under P&I association to the ship owners including the passengers and third parties. Another type of cover that P&I club provides is against the liabilities of illness or death of ship members, passengers as well as to other people (Zhu and Zhao 2015). The type of insurance P&I that the association provides is to cover the loss or damage on cargo at the higher levels in comparison to the commercial market level. Wreck removal is another type of protection and indemnity cover provided by the association, which requires the mobility of huge units that includes the cranes, sheer legs, pull barges etc. It was said that the many coastal areas that requires a removal of wrecked vessel cause harm to the environment, ship owners as well the parties hence it is important to include the insurance for its loss (Jaspersen and Richter 2015).

The cover or reimbursement provided by the P&I association includes to indemnify the loss arises from the pollution that affects the environment on the part of crew owners and other passengers. The association provides cover to protect the owners of the ship with respect to the collision that results in death, injury and other loss to the crewmembers including the salvage issues (Andeobu, Hettihewa and Wright 2015). The association of protection and indemnity formed to cover the liabilities arising from the damages on dock and liabilities of fines or penalties from the operation of the ships. The association provides cover on these losses and liabilities that affect the ship owners with respect to the commercial loss and personal loss. Other covers that include in the services of protection and indemnity are the protection from the salvage operations and loss due to oil spills that insures the tankers trading at international level. The services extend to cover the excess expenditures proposed to be incurred or incurred in relation to the several ship operations and management (Gandorfer, Hartwich and Bitsch 2015).

Shipping industry is one of the most critical industries that involve three essential components like ships, seamen as well as cargo. All the three components of the shipping industry involve the element of risk with respect to transporting the bulk of cargo on the ship operated by the seamen. The risk involved in the shipping industry affects the financial factors and personal factors of the ship owners, crewmembers as well as other people (Sarrabezoles, Lasserre and Hagouagn’rin 2016). Further, before the association of “protection and indemnity insurance” the traditional insurers involved in the marine insurance were unable and unwilling to consider therefore the P&I association had been formed to protect the liabilities of the ship owners. It is evident that the service in the shipping industry involves the risk of personal life along with the monetary loss if the ship meets with an accident or due to any natural disaster (Clarke et al. 2015).

On the contrary, the risk of loss of life is involved with the seamen and passengers as well if the ship is in the service of transferring the passengers. Hence, it is important to protect the loss arise from such disasters in the shipping service apart from the coverage of financial service. Hence, the association by the members of shipowners has been formed to provide protection and reimbursement for the loss and liabilities due to collision, wreck removal, pollution and other damages (Andeobu, Hettihewa and Wright 2015). The clubs of P&I provides protection to the ship owners not only with respect to the loss or damages but also assist in generating the required funds as well as the legal advisors. Many ship owners experience the problems in accumulating the necessary funds to get over the problems with the oil spills, pollution, collusion or such other disasters. Accordingly, the P&I clubs provide assistance in raising the funds to the ship owners required to overcome for such damages. In addition to this, P&I clubs is important since it provides assistance as an insurance guarantor for several disparities that ship owners requires to solve the issues from several damages (Palma 2015).              

Conclusion

Considering the huge risk element in the shipping industry, it can be said that the prospective loss or damages to the ship owners is essential to be indemnified. Since the conventional insurers on marine insurance were not willing to protect the losses and damages to the ship owners therefore, the group of members formed a club to protect the ship owners in different ways. The clubs were formed to operate on mutual decisions as well as providing the services without the intention of earning profit. The primary objective of the clubs to provide services based on the monetary issues, loss from personal injuries and providing the experts for legal advice. The service in the shipping industry is critical and involves issues in connection to the environmental pollution, stowaways, damage to cargo or dock that involve loss of monetary and non- monetary loss. Therefore, the clubs had been formed to reimburse such losses to the ship owners for protecting the ship members and other people in connection with the shipping service. Another primary service that the P&I clubs provides to benefit the ship owners with the smooth flow of funds required by the ship owners for several shipping service. Therefore, it can be concluded that the association of protection and indemnity insurance is important aspect of maritime insurance to protect the various functions conducted by the ship owners in the shipping service.

Reference List

Andeobu, L., Hettihewa, S. and Wright, C.S., 2015. Risk Management in the Extractive Industry: An Empirical Investigation of the Nigerian Oil and Gas Industry. The Journal of Applied Business and Economics, 17(1), p.86.

Clarke, D., de Nicola, F., Hill, R.V., Kumar, N. and Mehta, P., 2015. A Chat about Insurance: Experimental Results from Rural Bangladesh. Applied Economic Perspectives and Policy, 37(3), pp.477-501.

Davies, P., 2015. Nairobi Convention on the Removal of Wrecks, Turkey's Position and the Role of Insurers, The. Tur. Com. L. Rev. Online, 1, p.9.

Depré, E., Reniers, G.L. and Zamparini, L., 2016. 5. Multimodal transport insurances. Multimodal Transport Security: Frameworks and Policy Applications in Freight and Passenger Transport, p.64.

Gandorfer, M., Hartwich, A. and Bitsch, V., 2015, May. Hail risk management in fruit production: anti-hail net versus hail insurance in Germany. In XVIII International Symposium on Horticultural Economics and Management 1132 (pp. 141-146).

Jaspersen, J.G. and Richter, A., 2015. The wealth effects of premium subsidies on moral hazard in insurance markets. European Economic Review, 77, pp.139-153.

Palma, D., 2015. Ensuring Insurance for Foster Care: Requiring Foster Parents to Obtain Liability Insurance to Cover Harm Done to Foster Children in their Care. Family Court Review, 53(4), pp.663-675.

Pearson, R. and Doe, H., 2015. Organizational Choice in UK Marine Insurance. Corporate Forms and Organisational Choice in International Insurance, p.47.

Sarrabezoles, A., Lasserre, F. and Hagouagn’rin, Z., 2016. Arctic shipping insurance: towards a harmonisation of practices and costs?. Polar Record,52(04), pp.393-398.

Smith, M., 2015. In the Wake of the Montreal Convention: Why Maritime Law Should Abolish Limited Liability for Personal Injury and Death Claims. Austl. & NZ Mar. LJ, 29, p.36.

Zhu, L. and Zhang, M.Z., 2015. Insuring Against Marine Pollution Liability: An International Perspective. J. Mar. L. & Com., 46, pp.373-373.

Zhu, L. and Zhao, Y.C., 2015. A feasibility assessment of the application of the Polluter-Pays Principle to ship-source pollution in Hong Kong. Marine Policy, 57, pp.36-44.