P&I clubs are already initiating increases of 10-20% in shipowners’ premiums at the next renewal, says the broker
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 a report.
P&I clubs are already initiating increases of 10-20% in shipowners’ premiums at the next renewal, said Aon’s P&I Pre-renewal Report 2007.
The broker said in a release: ‘The high value of claims in 2004 – so far totaling USD280m – were viewed as an anomaly yet current evidence suggests that costly claims may be a feature of the current cycle. This pattern sees 2006 claims reaching USD580m with an average claim value of USD18.06m, nearly double the 2004 average at USD9.66m.’
There is already an ominous outlook for 2007, clocking up USD84m in claims after just six months, which beats the figures for 2006 after a similar period, said the report. Aon believes this is partly due to a more expensive operational environment.
“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.
Stephen Hawke, executive director at Aon
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, said the broker.
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.”
Aon said the more expensive shipping environment is due to:
more sophisticated and expensive ships;
advances in salvage technology;
costly yard repairs in short supply;
environmental and personal safety legislation, the so-called convention creep.
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