10 Questions
What is the main objective of ensuring equity between Members in a modern P&I Club?
To reflect the risk that each owner brings to the Club
Why do most P&I Clubs aim for a breakeven position on their underwriting account?
To avoid making a loss
What is the 'surplus' in a P&I Club often referred to as?
Free reserves
Why has the tradition of calling in funds only as and when a claim needed to be paid been abandoned by P&I Clubs?
Due to increased size and sophistication of the Clubs
What does the level of surplus represent for rating agencies in assessing the relative financial strength of the Clubs?
The relative financial strength of the Clubs
What is the objective of mutual insurance?
To share equitably the liabilities and costs incurred between the assured Members
How does self-insurance differ from commercial insurance?
Self-insurance charges an annual fixed amount of premium, while commercial insurance provides security against the volatility of claims.
How are claims handled in mutual insurance?
A 'call' is levied on each Member pro-rata according to the size and number of ships insured by them
Why does a commercial insurer charge an annual fixed amount of premium?
To satisfy its capital providers by making a profit
What is the impact of not having capital providers on mutual insurers?
They are not profit-driven
Study Notes
P&I Club Objectives
- Ensuring equity between members in a modern P&I Club is crucial to maintain a fair and stable system.
Underwriting Account
- Most P&I Clubs aim for a breakeven position on their underwriting account to avoid financial instability.
Surplus
- The surplus in a P&I Club is often referred to as the free reserve or capital.
- It represents the excess of assets over liabilities.
Claim Payment
- The tradition of calling in funds only as and when a claim needed to be paid has been abandoned by P&I Clubs to ensure timely and sufficient payment of claims.
Financial Strength
- The level of surplus represents the relative financial strength of a P&I Club for rating agencies.
- A higher surplus indicates a stronger financial position.
Mutual Insurance
- The objective of mutual insurance is to provide insurance coverage to members at a lower cost by sharing risks.
Self-Insurance vs Commercial Insurance
- Mutual insurance is a form of self-insurance, where members pool their resources to cover each other's risks.
- Self-insurance differs from commercial insurance, where a third-party insurer provides coverage in exchange for premiums.
Claims Handling
- Claims in mutual insurance are handled by the members themselves, who share the costs and risks.
Premium Calculation
- A commercial insurer charges an annual fixed amount of premium to cover the expected losses and expenses.
- The premium is calculated based on the probability of risks and the expected losses.
Mutual Insurers
- Mutual insurers do not have capital providers, which means they rely on member contributions to operate.
- The lack of capital providers affects the financial stability and growth of mutual insurers.
Explore the concept of mutuality and the different ways of dealing with risk, including self-insurance and commercial insurance. Learn about the benefits and drawbacks of each approach, as well as the impact of today's litigious climate on organizations.
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