In this Q&A Joe Hughes discusses the future of the Hull and P&I industry:
- Has the Hull and P&I markets reached an inflection point for future rating levels?
- How will 2020 implementation impact upon the hull and P&I sectors?
- With $1bn of cover available; how sustainable is the mutual model, and the International Group?
- The American P&I Club ethos
Read the interview below:
Q) Given recent developments in the hull and P&I markets, do you believe we are at an inflection point in regard to future rating levels?
There have been developing trends – certainly in the hull market, I think, over the last several months – that suggest that prices may have bottomed out in terms of hull cover. Whether that will reveal itself to the same extent in the P&I sector remains to be seen.
There has been, both in relation to hull and P&I, some real erosion over the last several years of insurance rating. And I think that, although much of that has been driven by benign claims experience, that may be coming to an end.
My instinct is that 2019, from a P&I context, might be the last ‘soft’ renewal we experience in the industry, and that 2020 might be rather different. And indeed, there are signs on the hull side that rates are increasing somewhat now, certainly by comparison with what was the case two or three years ago.
Q) With the 2020 global sulphur cap fast approaching, how will implementation impact upon the hull and P&I sectors?
From an insurance perspective, I think that both hull underwriters and P&I clubs are essentially agnostic in relation to how this will affect – or whether this is a good thing, for that matter – the insurance dimension, as it emerges over time, in relation to all this.
People have suggested that there might be an increase in engine breakdowns, created where fuel isn’t of precisely the right quality, or specification. That obviously might have a knock-on effect in regard to hull and P&I claims.
There could be issues concerning disputes between shipowners and the suppliers of those fuels, and indeed charterers, where it’s the charterer’s responsibility under charter parties, that have an implication for freight demurrage and defence cover that the clubs offer.
I think at this stage, it’s very difficult to know with any certainty how this will unfold from the point of view of any enhanced liabilities or exposures to hull and P&I underwriters. I think we’ll just have to wait and see what happens.
Q) With $1bn cover now available to the fixed P&I market, how sustainable is the mutual model, and indeed the International Group?
The International Group of P&I Clubs, whose oldest members go back 163 years, is very much a tried and tested system, and has the benefit of the support of the international shipping community. P&I clubs are owned and subscribed to by their members; it is a unique relationship within the Club between an insurer and an insured, who happens to be – in effect – the same party. And this is what makes mutuality so very special, and such a source of support for the community at large.
I do believe, however, that there is a place for fixed-premium insurers in the liability market in general. The American Club, for example, has as one of its brands the Eagle Ocean Marine Facility, which has been very successful over recent years.
I think that the fixed premium sector appeals mainly to the operators of smaller ships, in local and regional trades, where a fixed premium solution to their needs is more attractive – where they don’t necessarily need the very highest limits offered by the international group, and where they might not be so enthusiastic about assuming the obligations of mutuality.
So I think that the overwhelmingly dominant position in the liability markets, for shipping globally, will remain that of the International Group of P&I Clubs, but there will certainly be a place for fixed-premium insurers, and they will happily coexist, I would suggest, alongside the clubs.
Q) Could you sum up the ethos of the American P&I Club?
The American P&I Club is very much a members’ club, and we’ve always been that way, since we were founded nearly 102 years ago. Every member is important to us, from the largest to the smallest, and we encourage the closest contacts, and the maximum accessibility of our people, to our shipowner members.
We’re very much devoted to the idea that we’re all in this together, and we encourage, in a very transparent way, those close relationships that are key to making a mutual – which of course we are – very successful.