P&I stands for Protection and Indemnity. This is a specialist class of liability insurance protection for ship owners and charterers. It is rather useless to go into deep details of P&I practice as most of the dedicated insurers are publishing their own guides into P&I world, however, we would be pleased to go into academic discussions about P&I over a pint of beer with anyone interested!
The initial idea of P&I cover is to protect the ship owner’s interests against claims from third parties and to indemnify him in case ship owner is liable to compensate third party losses.
Normally you would face two “classes” of cover available from most P&I insurers, namely:
Class I – Protection & Indemnity (P&I)
This is general liability insurance, which would cover ship owners’ liability for main exposures they may face in today’s shipping, including, but not limited to:
- Passenger (and other persons carried on board) liability
- Stowaways and refugees
- Collision and contact with fixed or floating objects
- Wreck removal
- General Average not recoverable under Hull policy
Class II – Freight, Demurrage & Defense (FD&D)
This insurance is covering ship owners’ reasonable costs for necessary legal assistance in relation to disputes, which are directly connected with the operation of the insured vessel. It goes without saying that you do not need to be liable to be held liable, so FD&D cover is becoming more and more popular within shipping community these days.
To make things simple P&I insurance providers could be divided into two categories:
- Mutual clubs
- Fixed price facilities
The basic principle of mutuality is that you would be a member of the Club (similar to the shareholder) and will be able to participate in general routines of your Club’s operations. The benefit of the Club is that you automatically obtain the maximum possible coverage and certain flexibility and service level in claims handling and risk management, but on the other hand the premium you pay is also mutual and you may, in the end, contribute to somebody else’s claim by paying a supplementary call (that’s how Clubs are calling extra premium for already expired period of insurance) when you have not budgeted it.
Major mutual Clubs are forming International Group (http://www.igpandi.org).
Fixed price facilities are commercial organizations (as a regular insurance company), which are able to provide limited insurance cover (normally up to USD 250 or USD 500 million) on similar insurance conditions as any Club. You hardly will have any extra member benefits, but your premium will be predictable and fixed for a certain period of time.