P & I INSURANCE

P&I INSURANCE:-  Ship owners insure against loss of or damage to their ship with hull underwriters. They look to P&I clubs for insurance against their liabilities to others. P&I stand for protection and indemnity. P&I clubs offer ship owners and charterers various degrees of cover e.g. Protection, Indemnity, Strikes, Freight, Demurrage and defence etc. Individual clubs may offer slightly different types of cover, although in the main, most will offer the same basic cover. Most clubs offer two principal classes of cover. Protection and Indemnity ( P&I) known as class 1 and Freight, demurrage and defense  FD&D) known as class 2. P&I cover includes the following liabilities:-
1) Cargo claims (short delivery, loss or damage to cargo etc.)
2) Crew claims( medical expenses, repatriation, compensation of death)
3) Collision liability( the extent not covered in H&M policy)
4) Fixed and floating objects( damage to docks, wharves and buoys)
5) Third party injury and death claims( from stevedores, crew and passengers)
6) Oil pollution liability( or pollution by other substance)
7) Miscellaneous claims( including fines for innocent breaches of regulation, diversion and expenses)
FD&D cover indemnifies members for legal and related expenses incurred in connection with disputes under charter parties and other contracts, as defined in club’s rule, but does not extend to principal amount in dispute.
      Member of a club is not obliged to enter for all the risks set out above but may choose to take cover from his club in respect only of certain risk which he perceives as most pressing from his point of view.
  A year from noon GMT on 20th February to immediately prior to noon GMT on the next following 20 February is the policy year.
     While other insurance premiums are fixed on the basis of probabilities or actual calculation, P&I insurance premiums are reviewed annually on a per ship and/or fleet basis. Several factors are taken into account in the process, most importantly the claim records of vessel, specifically the average loss- ratio (claims as percentage of premiums) over the previous 5 years. The premium determined by the association and payable by the member may include the following:-
1) Advance calls:- Means the whole of the budgeted premium for the year, payable in quarterly installments.
2) Supplementary calls:- Later in the year, if claims have been heavier than expected, the managers will ask members for a supplementary call to balance the books. Clubs aim to be accurate in their prediction of future claims so as not to burden owners with supplementary calls.
3) Over spill calls:- One or more over spill calls in respect of an over spill claim.
If there is a surplus at final closing of a policy year, the General body may distribute all or part of the surplus among the members in proportion to the net annual calls paid for that policy year. Refunds are made when income( calls + investment) exceeds outgoing( claims+ expenditure).