Aon launches 2007 P&I Pre-renewal Report
The surge in costly P&I (protection & indemnity) pool claims in 2006 could be a sign of the times as booming shipping operations become more expensive, according to Aon’s P&I Pre-renewal Report 2007.
Aon said that in anticipation, P&I clubs are already initiating increases of 10-20% in shipowners’ premiums at the next renewal.
The broker said the high value of claims in 2004 – so far totalling $280m – were viewed as an anomaly but added that current evidence suggests that costly claims may be a feature of the current cycle. It said the pattern sees 2006 claims reaching $580m with an average claim value of $18.06m, nearly double the 2004 average at $9.66m.
Aon said there is already an ominous outlook for 2007, clocking up $84m in claims after just six months, which beats the figures for 2006 after a similar period. This is seen as partly due to a more expensive operational environment, including:
- more sophisticated and expensive ships;
- expensive cargoes;
- advances in salvage technology;
- costly yard repairs in short supply;
- environmental and personal safety legislation, the so-called ’convention creep’.
There is also a reported increase in smaller attritional claims although, arguably, these are mainly a function of the boom in shipping activity and retained by the clubs. However, Aon’s report focuses on last year’s claims over $6m which have impact on the entire pool.
The broker said that rather than merely calling for higher premiums, P&I clubs could react to the claims surge by demanding increased levels of deductibles to reduce the burden of frequent, smaller claims. It said more thought should be given to dual impact deductibles: a lower ’servicing deductible’ to access club services on a costed basis and a higher ’reimbursement deductible’ with appropriate premium discount.
On a wider basis for the future, consideration should also be given to raising the individual club retention even higher, which has already been boosted from $6m to $7m in 2007. This in turn should further reduce pool claims.
Stephen Hawke, executive director at Aon, said: “This renewal is likely to be one of the most interesting in recent years. It does not take a rocket scientist to be able to predict that rates are going up. The key issue, though, is to establish the causes behind the rises and the medium to long term prognosis. Historically, the mutual clubs have been robust in confronting the issues of the day but there is a real sense that the alarming rise in pool claims is not just a contemporary niggle but rather an indicator of a modus vivendi for the future.
“Precious premium dollars need to be shifted, and shifted up and away from the mundane and predictable and towards the less certain and volatile. The pool must be fully prepared to cope with the rigours of a more expensive operational environment and the evidence of 2006 would strongly suggest that the preparation needs to start immediately.”
