Friday, June 16, 2017

Infographic Reveals the Meaning of Mutual Insurance to Forwarding Agents and Shippers

Shipowners Club Sheds a Light for Uninitiated Ocean Freight Interests
Shipping News Feature
UK – WORLDWIDE – To those on the perimeters of the ocean freight shipping community, and that can include anyone be they forwarding agents or shippers themselves, the world of insurance can often be a bit of a mystery, particularly when terms such as 'Mutual' and 'P&I' are bandied about with gay abandon by those in the know. Now the Shipowner's Club has published an infographic which clarifies exactly how vessel insurance works.

By pooling resources individual ship owning companies can ensure no sudden financial shocks and this is what the Mutuals’ set out to achieve. When one considers that the risks covered range from flying an injured crewman to shore to a billion pound claim for complete loss of ship, cargo and crew, the idea of combining a large group of vessels under one, not for profit, assurance umbrella makes excellent sense.

Of course there will always be drawbacks, if claims exceed premiums in a given period all members of the club may be asked to stump up to cover the cost, and it’s almost a given that some shipowners will feel that not everyone aspires to their own high standards when it comes to avoiding claims but, in a system that dates back to ancient Greece, a seafaring civilisation where risks were considerably greater than now and which came up with the principal of General Average almost 3,000 years ago, something must be working.

The principals of General Average were established in Rhodes under the regulations contained in the Lex Rhodia which set out that, when there was a loss (for example when cargo was jettisoned or a mast cast adrift to save a vessel from foundering), all parties involved would share the costs. This principal worked so well it was in turn adopted by the Roman merchant fleets and has evolved to survive today.

P&I cover (Protection and Indemnity) provides a more comprehensive insurance than standard Marine Insurance which only mitigates against claims on a vessel’s hull and machinery. Underwriting the risks is arranged by the Mutual Societies and provides assurance for such things as cargo loss or damage, environmental incidents (oil spills etc.) and war risks. In the UK, P&I Clubs and underwriters are all subject to the Marine Insurance Act 1906.

To understand better how exactly P&I and Mutual insurance operates the Shipowners’ Club infographic is a useful place to start.

Photo: Throwing cargo overboard - from Tom Swift and His Giant Telescope Published 1939.