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LONDON-Protection and indemnity clubs are refusing to bow to European Commission pressure to ease their restrictions on shipowners movement between the clubs.
In June, E.C. Competition Commissioner Karel Van Miert warned the 15 members of the International Group of P&I Clubs that they faced losing their exemption from E.C. competition rules because they unduly restricted competition on two major fronts. He gave them until Sept. 16 to respond.
The International Group's members together insure 90% of the world merchant fleet's liability risks. In their response, the P&I clubs maintain there is no basis for Mr. Van Miert's concerns about their International Group Agreement, which may make it less attractive for shipowners to move between P&I clubs.
The IGA aims to limit runaway competition between clubs by requiring a shipowner that switches clubs to pay rates for the first year based on its claims record with the previous club. The International Group contends that is a "light restraint" on competition and necessary to underpin the International Group's claims-pooling arrangements.
Without the IGA, "there would be a very serious risk that the pool would collapse," and if this were to happen, shipowners' P&I costs would undoubtedly rise, the International Group said in a statement released last week.
It also claimed that as "there have been no market or commercial changes that would justify the commission in refusing to extend the exemption they granted to it in 1985," the European Commission is obliged to allow the exemption to remain.
The statement added that merely relying on free market price competition among the mutuals would not reduce shipowners' insurance costs, but "would merely alter the allocation of those costs between individual shipowners."
This would likely cause unfair rates to be charged to some members and a misallocation of costs between them, because some shipowners would be able to negotiate lower rates for the same coverage and terms.
The International Group believes it has already taken action to meet Mr. Van Miert's other major concern: the high level of coverage required by P&I clubs for shipowners through their agreement for pooling claims above their reinsurance limit.
Since Mr. Van Miert issued his objections, the clubs have agreed to reduce the level of individual owners' exposure to overspill calls to 2.5% from 20% of the vessels' limitation funds under the 1976 Limitation Convention. This means that maximum cover paid out for any incident is reduced to about $4.25 billion from the previous $20 billion-level.
P&I club managers and International Group Chairman John Riley met Sept. 18 with Mr. Van Miert in Brussels, Belgium. Mr. Riley described the meeting as "courteous and constructive" and said he hoped more meetings would take place so that a productive dialogue could continue.