PL Ferrari is predicting a likely rise in protection and indemnity club premiums for shipowners as claims look set to rise again next year.
The international P&I insurance broker’s market review for 2019 said the shipping industry faces reduced returns from the insurers in 2020.
Claims have already risen by more than $350m in the last two years.
"Member-owned P&I clubs within the International Group [International Group of P&I Clubs] are running unsustainable models that are offering too low insurance premiums to its members as claims," PL Ferrari said.
The report assessed the 13 mutual P&I clubs over the last three financial years. They insure 90% of the world’s oceangoing tonnage.
The study found that premiums charged by the clubs have reduced by 13.7%, or more than $370m since 2016/17, to $2.7bn.
At the same time, claims have increased by 14.6% or $350m over the same period to $2.4bn, and costs incurred by the clubs have risen by 10.3%, or $344m to more than $3.3bn.
Rises coming next year
TradeWinds has been reporting a spate of premiums rises among the big players in recent weeks.
The London P&I Club was the latest this month to seek a general increase of 7.5% at the upcoming policy renewal.
This level has proved a favoured figure. So far the UK P&I Club, the Standard Club and Steamship Mutual have all said they are looking for a 7.5% increase in rates at renewal.
The PL Ferrari report noted that the clubs have been able to offset costs and continue to offer favourable rates to members by holding record-high reserves, achieved partly through improved investment returns.
But the broker said the current claims cycle has now reached a new stage and the rise in the cost of claims over the past three years seems to be unrelenting.
Claims have risen in part due to an increase in the tonnage being covered by the clubs.
In 2018/19, the 13 clubs collectively insured 1.73bn gt (including owned and chartered), up 3.5% from the 1.68bn gt insured in 2017/18, and up 20% on five years earlier.
The report revealed that in 2019/20, clubs have collectively covered 1.8bn gt, an additional 3.6% increase on 2018/19, which points to further potential claims increases in 2020.
Tariff effect
PL Ferrari also pointed to macroeconomic drivers that are increasing the cost of shipping into 2020, including increased tariffs as a result of the US-China trade war and upcoming emissions regulations.
"As a result, both the average yields offered by the clubs back to their members, and the total investment returns, have fallen precipitously over the last two years.
In 2018/19, the clubs collectively yielded just over $100m, down from the $428m (or 0.82%) yielded two years before," the broker added.
Alistair Rivers, head of marine and transportation at PL Ferrari parent Lockton Global, said that every P&I review over the last few years has pointed out that premiums and claims are not in balance.
"Therefore, all insurers are under increasing pressure to address this premium deficit," he said.
“At some point over the past two years, most if not all clubs have issued statements to the effect that the mutual market needed to increase premiums over the next one to five years to ensure financial stability. 2020 may be the year we see the resulting pressures materialising into concerted action.”
