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Reflecting its concerns about a major piece of international regulation, the International Union of Marine Insurers conference devoted a special session to the International Safety Management Code.
The code has been devised by the International Maritime Organization, a London-based unit of the United Nations, to apply a universal benchmark for marine safety management procedures (BI, Aug. 18). It requires shipowners and operators to have systems in place to prevent accidents and pollution and applies to passenger ships, high-speed craft and oil and chemical tankers of more than 500 gross tons as of next July 1.
As of July 1, 2002, it will apply to most other vessels weighing more than 500 gross tons.
In a video presentation to the conference, Bill O'Neil, IMO secretary general, expressed concerns about the slow pace of shipowners in getting ISM certification. He pointed out figures from the International Assn. of Classification Societies showing that so far, only 11.2% of affected vessels have been certified. This raises concerns for the IMO and shipowners since the deadline is less than 10 months away and it can take up to two years to comply with the code. The IACS bodies will do most of the work on ISM certification.
Mr. O'Neil urged IUMI's marine underwriter members to deny shipowners insurance coverage if they fail to comply with the code.
However, it is by no means clear to what extent this will be done.
Peter Christmas, chairman of IUMI's Ocean Hull Committee, reported at the conference that most of the global markets for marine insurance have yet to decide their response to clients that fail to meet the deadlines.
He added that several markets have also pointed out the difficulties of denying coverage in such a soft market environment, since other insurers are willing to write what one turns away.
Nigel Jenkins, chairman of the Institute of London Underwriters, said the group, which represents more than 50 British and foreign-parented companies active in London marine insurance, supports the code.
However, he acknowledged that whether insurers decide to make ISM compliance a condition of coverage depends very much on individual companies and local legislation.
Timothy Humm, a director of underwriting agents Hiscox Syndicates Ltd. and chief underwriter on Lloyd's marine syndicate 625, said he fully supports the ISM code, claiming, "It is the natural ally of underwriters."
As a result, Mr. Humm, who also is chairman of IUMI's Joint Hull Committee, would like to see all marine insurers adopt a consistent approach, including underwriters insisting on seeing accurate information on ISM compliance by shipowners and operators before insuring a vessel.
The shipping companies' main liability insurers, the protection and indemnity clubs, are pushing to make ISM compliance a requirement of coverage.
Nigel Carden, an IUMI conference observer on behalf of the International Group of P&I Clubs, said clubs belonging to the group decided at a meeting earlier this month to make possession of valid ISM certificates obligatory for members.
The International Group will also recommend that when its P&I club members make routine ship inspections, they should include checks to ensure that the ship-owner operates an effective safety management system in compliance with ISM requirements.
Mr. Carden, also a partner in Thomas R. Miller & Son, the London-based managers of the U.K. P&I Club, said the changes would deny uncertified members coverage for any claim arising from failure to comply.
However, Lars Lindfelt, managing director of The Swedish Club, one of the P&I clubs, said no one in the insurance sector "has yet given a straight answer" as to how they will treat ISM code failures.
"I think it would be a shame if the underwriting industry didn't support the ISM," said Mr. Lindfelt, who will retire soon.
Mr. Lindfelt added that while The Swedish Club has been giving a rebate for the past two years to members who comply with ISM, he did not know what the club will do as of July 1998.
Richard DeSimone, chairman of the American Institute of Marine Underwriters, said the U.S. market is less affected by the ISM code because of its relatively small amount of ocean hull business.
While Mr. DeSimone, who is also senior vp-marine for Madison, N.J.-based Atlantic Mutual Insurance Cos., acknowledged that ISM Code compliance is a concern for U.S. marine underwriters, he added he was "not so sure that we're as concerned as some other markets."
At an official level, shipowners' associations have backed the ISM Code.
Chris Horrocks, general secretary of the London-based International Chamber of Shipping, said the shipping industry has not tried to seek an extension of the deadline.
However, while he accepted that shipowners who made no effort to achieve ISM compliance deserved to be punished, he called for "some rational method" of dealing with those who legitimately try for compliance but are caught up in the logjam. For this latter group, it makes no sense for P&I clubs to deny them coverage, he maintained.
John Lyras, president of the Union of Greek Shipowners, expressed a similar sentiment. In a paper delivered on his behalf, Mr. Lyras asked marine insurers to appreciate the difficulties for shipowners of compliance and "to stand by the industry as they traditionally have done."
The International Assn. of Independent Tanker Owners has made ISM Code compliance a condition of membership, according to Francis Vallat, one of its past vps.
He said more than half the ships of INTERTANKO members have ISM compliance. This number is expected to rise to 85% by the end of 1997 and to 95% by the July 1998 deadline.
The European Commission has strongly backed ISM. Gilles Bergot, administrator of the E.C.'s Maritime Safety Unit, told the conference the European Commission is fully convinced the Code is an "extremely important" measure for safety at sea and the environment and thus is sending out a strong message that there will be no flexibility on the July 1998 compliance deadline.
He said the European Commission expects to have legislation in place by the deadline that would enable European Union ports to deny access to ships without ISM certificates or even to detain such ships, though he acknowledged such detentions were likely to be for only short periods, because they could lead to port congestion.
However, Steven Redmond, underwriting director at Eagle Star Reinsurance Co. Ltd. in London and the ILU's deputy chairman, expressed concern about the possibility of flexibility on the deadline. "As soon as you give flexibility, you give more and more leash to extend. I hope we don't extend to such an extent that ISM is actually worthless," he warned.
He also was worried by Mr. Bergot's statement that it would be difficult to detain ships without ISM compliance. He said if some form of detention isn't put into force, "then we chase vessels around the world, which just pushes the problem away for a period."
A strong backer of ISM, Mr. Redmond urged underwriters to support it and implored all those at the IUMI conference to put ISM certification high on their agendas.