The ON Contrarian THE MONEY

Elementary, my dear owner Andrew Craig-Bennett investigates what makes owners’ tails wag in the world of P&I

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ere’s a column on P&I imbued with the spirit of Sherlock Holmes creator Sir Arthur Conan Doyle. I am not going to tell you which P&I Club to insure with, or how. Your broker can do that. I want to look at something else. When I was a callow youth, in the third quarter of the last century, the institution known as Lloyd’s was mighty pleased with itself. Its members prided themselves on the excellence of their (paper) systems, on their having, famously, been the only insurers to honour their policies after the San Francisco fire, thereby securing, through the foresight of Cuthbert Heath, a century’s dominance of North American insurance, on their calm fortitude in accepting unlimited liability and on the excellence of their market making system, which could and did price any risk other than those which Lloyd’s itself had deemed uninsurable under the Waterborne Agreement. Things are a different now. After the Rowland reforms, all that really remains of that body of (almost entirely) men, who once bestrode the insurance world like a colossus, is the excellent pricing mechanism. Real power has almost left the building. Ask Warren Buffett. But not quite: the annual negotiation of the P&I Clubs’ Group Excess of Loss contract threw up

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an interesting little twist, or so a small bird tells me. Reeling under the considerable shock of the most expensive wreck removal operation yet attempted, Munich Re, or so I am informed, proposed that, in future, wreck removal claims should be limited to $1bn per single accident or occurrence. This did not come to pass; others on the slip declined to follow the Munich Re’s lead. For the moment, the possibility of another Costa Concordia type wreck removal remains. A little victory for London. This episode, trivial in itself, tells us something more important. There is a real capacity issue. The risks are getting too big for the P&I system that we have grown up with. The Costa Concordia (pictured) was not an exceptionally large ship, by the standards of big cruise ships, and not very many of her passengers and crew died. The MOL Comfort was by no means an exceptionally large container ship, yet the group clubs should be thanking their stars that most of the cargo will have been shipped CIF and insured within the Japanese marine market, which plays by Japanese rules, so the cargo claims will be much less than they otherwise might have been. The rather alarming prospect is that these circumstances may not be unusual. The P&I Clubs have been told that a mistake in the design of the sponsons required to

Scotland Yard detective: Is there any other point to which you would wish to draw my attention? Holmes: To the curious incident of the dog in the nighttime Detective: The dog did nothing in the nighttime Holmes: That was the curious incident

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Issue ONE 2014

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float the hulk of Captain Schettino’s ship has added another $12m to the bill. That’s a pool claim in itself. Yet nobody batted an eyelid. A trifling sum of misery added to the account. It is not the prospect of an even bigger bill that should concern anyone. It is the likelihood that claims of these ruinous proportions will occur again, and again. You might have thought that the shipowners of the world, having to pay for these enormous losses, would first demand an explanation from Carnival Corporation as to why they did not require Schettino to at least lay down a parallel index, before showing off to his girlfriend, and an explanation from Mitsubishi Heavy, MOL and Class NK as to why their ship broke in two in quite normal weather. Not rocket science; common sense. Nobody even asked. The dog did nothing in the nighttime – did not even bark – because the dog recognised its owner. The ordinary shipowners of the world have not barked. They recognise their owners – the handful of giant corporations, with incomes bigger than the GDP of many nations, who alone can perpetrate such awful follies as these, and require everyone else to pay for them.●

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