Press article: P&I in Latin America

Constantino Salivaras, claims executive, discusses the development of P&I cover for ship-owners in Latin America

The article is reproduced below, and the full issue is attached.

Ship-owners in Latin America have a wide choice of commercial and mutual insurers for their P&I cover. Levels of cover will vary from insurer to insurer. However, many international trading companies will expect owners to comply with minimum P&I cover requirements. In some cases this may include a request that the vessel is entered with one of the 13 competing P&I clubs that make up the International Group (IG) of P&I clubs. In a difficult global freight market, the IG clubs offer owners a number of advantages over the commercial market.

P&I clubs are mutual organisations – in other words a club’s insured members are also the owners of the club. Unlike the commercial insurers, P&I clubs are not-for-profit organisations. The 13 principal underwriting member clubs of the IG between them provide liability cover for approximately 90% of the world’s ocean-going tonnage. The IG system provides a high level of financial security to members through a claim-sharing agreement (the pooling agreement), with all qualifying claims in excess of $9m being shared between clubs, covering members for catastrophic risks.

One of the main advantages of P&I clubs is that they are member-oriented and work to protect their members’ interests in all matters, and particularly when paying claims – supported by strong financial structures. Their managers are also service-oriented, being primarily focused on high quality service and delivering members’ needs.

Other advantages include:

Clubs from the IG issue ‘blue cards’ (certificates providing a guarantee of cover, for example, for pollution liabilities) which are universally accepted, unlike some commercial markets.
IG clubs offer immediate access to club letters of guarantee or undertaking to secure the immediate release of an arrested or delayed vessel, sometimes in the most difficult jurisdictions.
Individual IG club boards have discretion to decide whether they can provide cover for a member’s claim, even if it is not strictly covered under the policy, and tend to have a more flexible approach than commercial insurers.

Alongside the P&I cover provided by IG clubs, there is increasing demand in Latin America for fixed premium P&I cover, especially for coastal and small inland vessels. The fixed premium market can sometimes offer an opportunity to reduce operational expenditure, when there is no need for the high financial limits provided by IG P&I and the blue card system. However, P&I clubs in general, because of their not-for-profit structure, are usually very competitive for the cover provided.

Another development focusing attention in Latin America is the requirement in some jurisdictions for insurance to be placed only through locally licensed insurers. In some cases in the P&I market, cover is placed with local insurers with the vast majority of the risk reinsured with an international P&I provider – which also provides the majority of the servicing.

It is arguable that this approach leads to increased cost for ship-owners and it is expected that the P&I market will develop further to better combine the advantages of international P&I cover with high quality local or regional regulation. Countries such as Colombia have already changed their local regulations and global insurance is now allowed to national companies via their parent company abroad without having to deal with local insurers. However, countries such as Argentina and Brazil are tightening their reinsurance regulations.

The P&I market in Latin America will continue to develop over the coming months and years to provide broader and more varied cover for ship-owners

This article was published by LatAm Insurance review in January 2014 and is reporoduced with kind permission. For more information visit http://www.insurancelatam.com/

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