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Understanding P&I clubs: the backbone of maritime liability

Shipowners around the globe are intimately familiar with P&I (Protection & Indemnity) insurance. This essential coverage, housed within P&I Clubs, protects against maritime liabilities. Across the industry, approximately 100,000 ships are insured by just 12 P&I Clubs, contributing roughly US$4 billion in premiums—an amount sufficient to cover all claims.

These 12 P&I Clubs are members of the International Group of P&I Clubs (IG), which coordinates agreements on large claim distributions and maintains a joint reinsurance program. However, one aspect that sometimes frustrates shipowners is the anti-competition agreement among the P&I Clubs. This agreement prevents them from fully benefiting from free market competition.

Why P&I clubs stick together

The collaboration among P&I Clubs is understandable when considering their relative size. Compared to standard insurance companies, P&I Clubs operate on a smaller scale. Each P&I Club’s premium level ranges between US$150 million and US$800 million, making even the total P&I premium of US$4 billion seem modest in the insurance world.

With a combined market share of 90%, the IG Clubs wield significant influence. The remaining 10% of the market, valued at US$400 million, is served by non-IG P&I providers, which include commercial insurers and smaller local P&I Clubs. This sector primarily covers vessels deemed non-compliant by IG standards, often due to factors like ship size, ownership of only one or two ships, or the ship’s age and classification.

The Non-IG P&I market: a necessary alternative

Despite the dominance of the IG Clubs, the non-IG P&I market plays a crucial role. It is incorrect to assume that ships unable to secure coverage from an IG P&I Club are inherently poor risks. The existence and persistence of the non-IG market demonstrate that commercial insurers can manage this segment effectively. If this market segment were consistently unprofitable, it would have ceased to exist long ago. The adage “a bad risk does not exist, only bad underwriting” aptly describes the situation.

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