$2bn passenger cruise sublimit should be raised, says Marsh’s Cracknell

In Marsh JLT’s just-published P&I Review, Mark Cracknell, Head of P&I at Marsh JLT has noted that an issue with potentially significant financial consequences for those concerned, was the current $2bn limit on cover for liability toward passengers. Cracknell said that an ever-increasing number of new generation modern cruise ships now had a requirement under the EU Passenger Liability Regulations (PLR) to provide certification for a sublimit in excess of the $2bn for passengers cover. Noncompliance with PLR was not an option. The clubs insuring these vessels under the current arrangements were only able to provide the necessary certification with the support of additional reinsurance, for which Members had to pay.

Cracknell observed that the $2bn sublimit would have been “more than adequate” to meet the PLR requirement of the largest passenger vessels operating when it was first established, but today it fell short. This meant that what seemed to be a mutual P&I risk was being transferred from the mutual pooling system to commercial insurers. A further problem was that there was fairly limited capacity among commercial insurers for this exposure on the terms required. As a result, those underwriters with the required appetite were benefiting from a seller’s market.

Cracknell said that the success of the cruise sector was a factor here. Whereas a decade or so ago the number of clubs that would accept cruise business could be counted on the fingers of one hand, that was no longer the case. Nearly every P&I club either already wrote cruise business, or had expressed a strong interest in doing so.

Apart from significant growth being recorded in the sector, the cruise operators had also shown themselves to be committed and responsible contributors to the mutual P&I system.

Cracknell said that an unintended outcome of the original decision to place a cap on passenger cover – which at the time it was first imposed was at a level vastly in excess of any regulatory requirement for it – was that some of the cruise industry’s most successful operators were now effectively being penalized by the P&I system as a consequence of their growth. This resulted from a requirement to pay for the very expensive “top up” reinsurance that enabled their clubs to issue the mandatory PLR certification for some of their ships. Cracknell said that this seemed “contradictory to the fundamental principles of the mutual (not for profit) P&I system”.

Cracknell said that, if it was accepted that the cruise industry was part of the mutual P&I system, as it very clearly had become, then it seemed reasonable that the P&I system should not discriminate against the industry; “nor should it needlessly operate counter to the industry’s needs”.

Cracknell said that there was an easy solution, that being to remove the passenger sublimit so that $3bn limit of cover for personal injury claims applied howsoever those claims might arise. “The clubs could then provide PLR certification for all of today’s cruise fleet (and what is envisaged for several years) without the need to engage commercial reinsurance markets”, said Cracknell.

However, he also accepted that this “simple” solution was easier said than done.

Most of the club managers appeared to Marsh JLT to support this change, although some were also worried about the potential for damage to the reputation and standing of the IG in the very remote eventuality of a large passenger claim where club cover could fall short of the PLR compensation requirement. Cracknell said that “the challenge is the IG decision-making process”. He noted that every club had the same vote, and while the required two thirds of the majority might be moving towards a consensus for this change, “dissenters have plenty of opportunity to establish roadblocks”.

https://www.marsh.com/uk/insights/research/protection-and-indemnity-review-2019.html