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January 12, 2004

P&I claims set to rise

Ship owners, operators and their P&I clubs face ever-increasing claims over the next few years, according to the North of England P&I club. The reasons cited include growth in the freight market, a raft of new and revised liability conventions and weakness of the dollar.

"Both the value and number of cargo claims have soared in recent months, " says joint managing director Rodney Eccleston. He says this is "due to unprecedented freight rates, sometimes exceeding cargo values, and because ships and crews are working flat out. While shipowners can takes steps to control the frequency and severity of cargo claims, it's the market that determines the freight element--and there's no sign of it cooling off yet."

The weakness in the U.S. dollar has an impact because "P&I business is generally transacted in dollars whereas the value of a claim is often initially determined in another major currency. A cargo valued in Euros, for example, now costs 25% more in dollars."

Meanwhile, owners and operators are facing significantly increased liabilities from several new or revised conventions. Most recent are 1992 protocols to the "CLC" and "Fund'" oil-pollution conventions, under which liabilities increased around 50% in November 2003.

"A further substantial increase is likely within the next 12 months as a consequence of the optional third-tier arrangements set out in the May 2003 Fund protocol," says the club's associate director Colin Trappe.

According to Trappe, a 250% jump in marine claims liability is also now imminent as nine of the necessary 10 states have signed up to the 1996 protocol to the "LLMC" convention, including the U.K.

"Add in the all-new 1996 'HNS' hazardous substances convention, the 2001 'Bunkers' convention and the 500% increase in passenger liability proposed by the 2002 protocol to the 'Athens' convention and it's clear that owners, operators and their P&I clubs are facing a wave of higher claims," Trappe says.

Eccleston is convinced that the P&I clubs have the necessary resources and experience to protect their members from the onslaught but says it is critical they remain properly funded. 'The clubs cannot afford any further erosion in their free reserves so it is important that the general premium rises being sought this year are achieved.'

The North of England's directors set a general increase of 17.5% for the annual renewal on February 20, 2004.

"We believe this will enable the club to continue its unrivalled record of maintaining its free reserve, which is vital to protect all members from the increasing risk of suffering a multi-million dollar claim," says underwriting director Paul Jennings. In the face of higher claims exposure the club is also increasing the resources and funding of its high-profile risk-management team headed by Dr Phil Anderson.

The North of England currently insures a 45 million GT fleet of 2,600 ships entered by 350 members from throughout the world. The club maintains an A- financial strength rating from Standard and Poor's.


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