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The brokers role in guiding ships towards safe harbours

06 August 2018Jonathan Faurie

In terms of international trade, South Africa plays a very important role in connecting the westerns parts of the world with the eastern parts. This has been a significant driver in South Africa taking a position of prominence when it comes to maritime trade.

However, the complexities and risks when it comes to the liabilities associated with maritime trade are vast. FAnews spoke to Grant Fugard, Marsh Business Unit Leader Marine, to find out a bit more about the complexities associated with Protection & Indemnity Insurance (a specialist sub-section of marine insurance). 

Steeped in history

Protection and Indemnity cover (P&I) dates back centuries to the marine trade in which vessel owners began pooling funds into clubs, a kitty of sorts, to share losses on a mutual basis. 

“Essentially, it lies at the heart of any insurance policy. However, P&I takes on the risks that more traditional marine insurance policies tend to avoid. These P&I clubs continue to form part of an association. The International Group of P&I Clubs remains one of the largest reinsurance programme placements in the world,” said Fugard. 

He added that a typical P&I limit of liability would be $500 million, although higher limits can be purchased. “The clubs charge only the essential premium in order to break even and build reasonable reserves for future losses. Each member pays a call to the club which resides in the pool. In the event of a poor claims year, where losses exceed the initial ‘calls’ (or premium), the onus lies with club members to meet this loss with a further call fee (an additional call),” said Fugard. 

Key role players

While some risks are covered in a standard marine insurance policy, such as a hull or cargo policy, Fugard points out that the majority of these liability risks relating to the ownership or operation of a vessel are only covered under a suitable P&I insurance policy.

 “This is a specialist field of marine insurance and an experienced broker who knows the risks and requirements of P&I is essential in helping vessel owners navigate often complicated insurance policies. For instance, P&I cover for a fishing vessel operating on the South African coastline will differ considerably from the cover required for a container vessel carrying thousands of containers around the world,” said Fugard. 

He added that while the wording in many of these P&I policy documents may seem similar, it’s in communicating the intricacies of the policy to the client and the risk to the underwriter, respectively, where a broker’s experience can prove to be pivotal. 

“These experts are familiar with the potential risks to each type of client and how to communicate the details to an underwriter in such a way as to secure the most favourable terms for the client. While most vessel owners require basic P&I cover, the meticulous broker will recognise where the policy needs a tweak or an extra add-on. This can include freight, demurrage and defence (FDD) cover, which protects a client against disputes from charter parties; bills of lading; and contract of affreightment,” said Fugard. 

Other important considerations also include special cover for salvors, charterers and specialist operations. Any marine broker worth his salt knows how to steer the ship through these waters. 

A legal minefield

Fugard pointed out that there is often a slew of legalities in dealing with liabilities, which, again, is where the professional assistance of specialist surveyors and attorneys, working together with a broker, will help in managing the situation and mitigating the fallout. 

A major benefit for a vessel owner entered into a mutual P&I club, or an established fixed premium P&I insurer, is a vast network of correspondents – usually surveyors, assessors and attorneys – spread across the globe. 

“Marsh is currently dealing with such a sensitive case in which the work of all parties involved, including the client, broker and attorneys, are crucial in seeing to the correct and fair outcome of the claim, which will very likely proceed to court. These risks need special cover tended to by specialists,” said Fugard. 

The importance of P&I cover will no doubt be highlighted at the upcoming International Union of Marine Insurance (IUMI) Conference which will be held in Cape Town in September this year. 

This is the largest marine insurance conference in the world and will provide a perfect platform to discuss the importance of this product as well as the important role that marine insurance plays in the country. 

Editor’s Thoughts:
Properly recognising and managing risks can only be achieved if they are pointed out by brokers who play an important role in risk management which is increasingly taking centre stage in the industry. Where are the naysayers now who say that the role of the broker is diminishing? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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