Ahead of the protection and indemnity renewal season in February, some members of the International Group of P&I Clubs have already announced a general increase of up to 10%, the highest in five years.
However, in addition to the traditional premium increase, these clubs have emphasised that additional adjustments will be based on individual shipowner performance.
This means members with poor claims records can expect even higher premium increases. Is this the new standard shipowners should look forward to?
There could be an alternative in the fixed premium market in Asia that is growing to match the development of its shipping infrastructure and services.
International Group members that have declared a premium increase defended their decision, citing market uncertainties brought about by the pandemic.
Furthermore, the 2020 policy year can be considered the worst in the past decade for International Group clubs, with high-profile incidents contributing to unprecedented pool claims, including the 203,100-dwt Wakashio (built 2007), 7,700-ceu Golden Ray (built 2017) and 4,900-ceu Hoegh Xiamen (built 2010), as well as Covid-19 claims for Princess Cruises.
Due to their mutual nature, all shipowner members of International Group clubs — claims-free or not — are required to contribute and replenish the pool to preserve their membership, resulting in increased pool and abatement costs among members. In addition, shipowners may be subject to unbudgeted supplementary calls, as well as release calls for leaving the club.
However, the high and rising cost of International Group membership can be a barrier for smaller and potential shipowners. Are International Group clubs the only available option for owners to acquire reliable P&I insurance?
Alternative solutions in the form of fixed premium P&I insurance have long existed outside of the International Group. Fixed premium insurers can provide cover without the high overheads of being a member of a club. Premiums are based solely on acquisition cost and individual loss records.
As Asia experiences signs of a recovery in the post-pandemic world, China is poised to be the only country to see economic growth for 2020. The region’s maritime sector has also remained fairly resilient. With more International Group clubs set to announce higher general increases at the renewal, fixed premium P&I insurers are likely to see better opportunities in the Asian market in 2021.
This can be seen from the growth of Asia in fleet value and as an international maritime hub.
Japan is the largest shipowning nation by fleet value, with China third and Singapore fourth, according to a 2020 VesselsValue report.
Singapore is the top international shipping centre based on the 2020 Xinhua-Baltic International Shipping Centre Development Index. Shanghai and Hong Kong are third and fourth, respectively.
With China’s Belt and Road Initiative, we can expect more maritime growth through the construction of deepwater ports and the expansion of existing ones in Asia. The continent’s shipbuilding industry promises to reinforce it as a bastion for maritime trade.
With the rise of maritime hubs in Singapore, Hong Kong and Shanghai, it is imperative that shipowners, port and terminal operators and other industry players are aware that some local insurers are able to provide composite liability insurance solutions that are cost-effective and bespoke. These solutions may be tailored to cover P&I for vessels, liability for ports and terminals, ship repairs, marine professional indemnity and any additional form of specialised marine liability.
Untapped potential
For tug operators and owners, this provides the small tonnage market with more options, especially since it is due to expand with the growing tonnage of larger vessels as well as a shift towards newer tugs that use environmentally friendlier fuels.
This is indicated by the strong global tug orderbook of 284 units at mid-April 2020, before Covid-19 lockdowns, according to BRL Shipping. We can expect more fixed premium P&I interest from this sector as the market recovers.
Although the fixed premium P&I market continues to be challenging due to headwinds and tough competition from International Group clubs, the Asian market is a focal point of growth in this field, with untapped potential for prudent insurers.
Sam Pik Ying is an underwriter at Markel International Marine
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