What Is P&I Insurance?

a young man in suit in his office showing an insurance policy and pointing with a pen where the policyholder must to sign

Throughout history, the maritime industry has been crucial to wars, commerce, and leisure. However, sailing a ship on the wide open seas has always been risky and, while advancements in technology and navigation have reduced these risks, all parties involved in a ship’s operations still need to prepare in case of accidents. This is where maritime insurance comes in. Among the different types of maritime insurance, one of the most prevalent is the P&I insurance, which is provided by a P&I club. But what can P&I insurance cover, and what can a P&I club do? Here is an overview.

P&I Insurance

Protection and Indemnity insurance (commonly known as P&I) is a maritime insurance policy commonly purchased by shipowners as protection against liability claims from passengers, crew, and third parties. While other forms of marine insurance exist to cover the hull and machinery for shipowners, and the cargo for cargo owners, P&I insurance covers risks that commercial providers may be reluctant to cover, such as the following:

  • Liability claims resulting from collision
  • Wreck removal
  • Salvage operations
  • Stowaways and repatriation arrangement
  • Claims for loss or damage to cargo
  • Damages to floating and fixed objects (e.g. fishery facility, pier, oil rig, jetty, etc.)
  • Environmental damage or pollution

P&I Clubs

A P&I club is a cooperative or mutual association of marine insurance providers who are usually non-profitable and non-governmental. These clubs mainly provide marine insurance to members under their member companies, which consist of shipowners, charterers, operators, and seafarers.

P&I clubs originated from the Protection Clubs set up in the 1800s in response to the British Merchant Shipping Act of 1854. Up until 1874, Indemnity Clubs were a separate entity from Protection Clubs, and it was only in that year that these clubs merged to form the Protection and Indemnity Clubs we know today.

The protection and indemnity insurance provided by P&I clubs is a type of mutual insurance, wherein the company or, in this case, the club, is entirely owned by its policyholders, and club profits are either retained within the club or rebated to the members. In a P&I club, a member would be required to regularly pay a certain amount referred to as “call,” which would then go to the club’s pool. If the pool still has funds at the end of the year, the members pay less call the following year. However, if funds were depleted to pay off any of the claims covered by P&I, club members must immediately pay additional call to refill the pool.

Signing an insurance policy

Before being allowed to enter a P&I club, the vessels belonging to a company might be subjected to inspection. There can be regular inspections of the vessels as well during the company’s membership. If a ship owner fails to keep vessels up to the club’s required condition, their company can be expelled from the club.

However, not all P&I insurance are mutual and P&I clubs are not its sole provider. A number of P&I Clubs and maritime insurance companies also offer fixed P&I insurance. This type of policy can be acquired without being a P&I club member and would charge the policyholder fixed premiums instead of varying call amounts.