P&I CLUBS TO REDUCE SHIPOWNER LIABILITYPosted On: Aug. 17, 1997 12:00 AM CST
LONDON-The International Group of P&I Clubs, whose 15 member protection and indemnity mutuals insure approximately 90% of the world's merchant shipping fleet, have agreed on a united response to the European Commission's threat to end their exemption from E.U. antitrust rules.
The International Group said last week that all its members have now agreed to reduce shipowner member's exposures to large claims.
The E.C. Competition Directorate had given the group until Sept. 16 to respond to its claims that they were restricting competition by charging members too much for liability coverage.
In a major concession to the European Commission, all the P&I clubs agreed to reduce their members' overspill limit-the amount of losses for which shipowners are held liable in excess of the International Group's pooled reinsurance coverage-to 2.5% from 20% of each vessel's limitation fund.
This equates to aggregate exposure for the International Group's members of about $2.25 billion excess of the current reinsurance limit of $2 billion. Under the 20% limit set in February 1996, their combined exposure was approximately $20 billion.
John Riley, International Group chairman, said the lower exposures should be acceptable to E.C. officials in Brussels, Belgium, because they "have been pitched at a level which is both tolerable and sustainable."
However, the International Group refused to bow to an E.C. call to abolish a rule discouraging the movement of shipowners among P&I clubs.
Mr. Riley said that if the Commission had its way, "the whole P&I system would be threatened" and there would be "significant increases in insurance costs and substantial reduction in cover."
The P&I clubs have agreed to resist an E.C. challenge to their International Group Agreement. That agreement stipulates that a shipowner switching coverage from one club to another must pay contributions during the first year with the new club at the previous rate.
The clubs say the IGA is crucial to its pooling arrangements for sharing claims.
The International Group had received a 10-year exemption period from E.C. competition rules, but this expired in February 1995. Since then, the clubs have been operating as usual, pending a decision by the E.C. Competition Directorate on whether to renew the exemption.
However, in June, E.C. Competition Commissioner Karel van Miert issued a "Statement of Objections," claiming the P&I clubs' liability limit was too high at 20%.
Mr. van Miert gave the International Group until Sept. 16 to respond.
Mr. Riley said the clubs' united stand on these issues "shows how important they are to the future of the P&I system."
The European Commission has not said how soon after its Sept. 16 deadline it would reach a decision on whether to accept the International Group's submissions.