Unprecedented pool claim costs have led International Group clubs to take “robust action” for the 2022/23 policy year – and with tougher times ahead, maintaining a sustainable P&I system will rely on continued shipowner support, says North P&I Club’s Chief Executive, Paul Jennings and Chief Financial Officer, Ed Davies (pic below).
In recent years, an unusually high number of complex and well-publicised incidents, which the P&I system manages on behalf of shipowners worldwide, has resulted in International Group pool claims reaching unprecedented levels. In 2020, the six-month claims cost was nearly double that of any year in the preceding twenty, while claims for the half-year point in 2021 were higher still. The growing consensus across the industry is that these costs are likely to remain high in 2022 and beyond.
2021 also saw a surge in the number of Covid-related crew claims linked to the resumption of more usual global shipping operations, compounding the escalating pool claims situation to set the scene for what North’s 2022 Report describes as “one of the most challenging years on record”. Against this background, S&P Global placed nearly three quarters of the P&I market on negative outlook, highlighting the need for clubs to take robust action to address operating results. In its 2022 Pre-Renewal Report, North announced a 15% general increase to its P&I premium rates for the 2022/23 policy year, and it was not alone in setting a double-digit GI for the coming period. This was a strong but necessary response to address a funding gap – or, as Davies refers to it, “a yawning gulf” – of $500 to $600 million.
While North’s well-diversified investment portfolio continues to deliver positive returns, income from this source is, at present, too modest to compensate for the record pool claim costs that the Club and its fellow IG members are currently facing, comments Ed Davies, Chief Financial Officer, North. “Expensive claims are the reason the P&I pooling arrangement exists, but claims are becoming increasingly costly to maintain,” he explains. “Last year we reached the inflexion point where investment income only just kept the P&I system afloat. And that was a year when a typical club achieved six to seven per cent in investment returns. At this point in the cycle, even a P&I club portfolio has nowhere to seek those levels of return.”
With no immediate relief in sight for marine insurance, Paul Jennings, Chief Executive, North emphasises the importance of ongoing shipowner support in maintaining the P&I system. “Shipowners are also club owners – they have every right to demand value and support from their P&I Club,” he says. “Equally, shipowners recognise the unparalleled role that the P&I system plays and that it is too important to be imperilled. It is a unique system of collaboration that could only have grown up over many years of their continual support and guidance. Therefore, we hope that they will understand the need to keep supporting their P&I club – an investment in the club that they own and in the sustainability of the P&I system as a whole.”