During the mid-nineteenth century shipowners found themselves with liabilities which their traditional hull underwriters (Lloyds) were unable or unwilling to cover. In order to solve the problem groups of shipowners formed themselves into mutual associations and agreed to share each other's claims. These early organizations have now developed into thirteen Mutual Insurance Associations or so-called Protection & Indemnity (P&I) Clubs, which between them insure the liabilities of some 95% of the world's ocean going tonnage.

Mutual
The P&I Clubs all operate on a mutual or non- profit basis aiming to call up only sufficient money in each year to meet costs, expenses and claims for that year. There are no shareholders and the shipowner members of the Association insure each other.

The International Group of P&I Clubs
The biggest mutual P&I Clubs co-operate in two important areas. First the Clubs themselves share claims with each other and buy high levels of reinsurance on a collective basis. This enables each Club to provide much higher levels of cover than are normally available in the commercial market. The insurance thus operates in three tiers, firstly the Club will pay claims of up to a certain amount, secondly the Pool of all Clubs will pay an amount in excess of this and thirdly the claims over the sum of those amounts are reinsured as one collective contract which is said to be the biggest liability reinsurance contract in the world. The second area of co-operation is in matters of common interest, such as new legislation or discussions at the International Maritime Organization (IMO) or standard shipping contracts.

Non Mutual
I addition to the mutual P&I Clubs there are several companies providing P&I cover on a fixed premium basis. Some of those fixed premium Clubs are well known and established for many decades providing first class services, although the limit of liability they can cover is rather limited compared to the International Group Clubs.

The Cover

The P&I Clubs provide cover for a shipowner's liabilities, not the fabric of the ship itself. The risks covered will usually include:
1. Death and personal injury of Seamen, Passengers, Third parties
2. Liabilities in respect of stowaways or persons saved at sea.
3. Liabilities arising from collisions.
4. Liabilities arising from groundings.
5. Liabilities arising from damage to fixed and floating objects.
6. Liabilities arising from pollution.
7. Liabilities arising from wreck removal.
8. Liabilities arising from towage operations.
9. Liability to cargo.

Together with other legal and other costs associated with dealing with these claims.

The Service

A P&I Club operates as a mixture of an insurance company, a law firm and a loss adjuster. This means that a Club should be able to assist a shipowner in dealing with every aspect of a casualty from finding experts and contractors to deal with the immediate casualty through to legal advice and paying claims. The P&I Club exists in order to help the shipowner and pay his liability claims. Almost always the shipowner and his Club will work together in order to solve the problems and it is very rare that a Club will be in dispute with a shipowner over cover.

The Clubs are unique organizations in that they provide not only insurance cover, but also claims handling (legal) advice and a casualty response service. In managing a shipowner's liabilities a Club may have to deal with the loss of two bags of rice or the total loss of a fully loaded VLCC. The Club's reaction therefore needs to be highly flexible and geared to the particular incident. The Clubs have access to a high quality network of specialist technical advisers, maritime lawyers and local commercial correspondents. Correctly used, that network should ensure that the shipowner and his Club will be properly advised on the essential elements of the claims which arise out of a casualty. The shipowner can expect to be told whether or not he is liable for the claim, how much it may cost, whether he is entitled to limit his liability and whether he may expect to recover all or part of his loss from some other party who may also be to blame.

Useful Links
International Group of P&I (IGP&I)