Is marine insurance headed back to its (modern) roots?

By Nikos Recantzis
Many of the International Group of P&I Clubs (IG) have been actively engaging into the
Hull market, either by establishing syndicates in the Lloyd's market (the likes of SKULD and more
recently the Standard Club) or by acquiring/ backing established Hull facilities (such as, for
instance, the North of England with Sunderland Marine and quite recently the American Club with
Hellenic Hull Mutual).
Although this may seem as a radical development, it shouldn't be forgotten that the present
P&I Clubs are the remote descendants of the many small hull insurance Clubs that were formed by
British shipowners in the 18th century. These were set up by groups of shipowners, who were
dissatisfied with the scope and cost of the hull insurance then provided by the two companies who
had been granted in 1720 a statutory monopoly which excluded other companies from such
business.
Yet again, being far remote in time and given all the developments of the modern P&I
(mutual) market, it does seem odd for the mutuals to get an appetite for a slice of the hull market,
especially in light of the continuous losses the market underwriters have sustained (18 consecutive
years technical result at loss, 2014 could be the first year with an underwriting profit) topped with
recorded overcapacity. On the other hand, there have been underwriters who have been successful
in both classes of business for decades, such as the likes of the Swedish Club (who started off as a
hull club in 1872, later on to expand into the protection and indemnity risks).
In addition to the above, there have been many market underwriters and Lloyd's syndicates
who have been writing successfully for a number of years both Hull and P&I, on a fixed premium
basis though (such as British Marine, Osprey Underwriting, Ingosstrakh to name a few) and others
that opened-up in the fixed P&I market in the recent past (such as AXA, Markel, Beazley amongst
others). Though the latter examples are/were limited in terms of scope of cover, size of vessels
covering etc they do provide a good example that the one-shop approach has been gaining
momentum in the market.
This is also proved, within the IG, by the successful example of GARD who have paved the
way for diversification of the mutual providers, to the extent that it writes P&I, hull, marine
liabilities, energy etc. Driven also by the current regulatory developments of the Solvency II
directive (which affects the majority of the 13 Clubs of the IG) many Clubs have amended their
strategy and walk now all the way down to risk diversification, establishing alternative ways of
investing the vast amounts of accumulated free reserves for the benefit of their membership.
This development is providing the market with additional, good rated, security and it affords
owners with economies of scale, as now their P&I provider can write a significant line on their hull
policy cost saving as well as bigger bargaining power in case of claims are few of the side effects
to it. But one must not forget that there is the dark side of the moon; in case of a dreadful fleet
record, there will be less flexibility afforded to the member. Moreover in case of a controversy
relating a complex claim, if the underwriter is effectively the same entity, some elements of the
claim could be prejudiced by the single view of the same provider.