In its 2017 report on the P&I Clubs, broker Jardine Lloyd Thompson asked all of the clubs a list of questions. Here are the responses of American Club, Britannia and Gard to one of those questions. Over coming days IMN will be printing the responses of other P&I Clubs to this question.
Q: Is there a case for the discontinuation of the International Group Agreement, the restriction on price competition between the IG clubs? It is argued by some that, in view of the significant increases in the attachment point of the pool IG itself, now $10m, the case for protecting the operation of the pooling system is outweighed by the need for pricing of mutual P&I insurance to reach a true market level. This, proponents argue, will expose inefficiencies and foster a market rationalisation that the failed merger between Britannia and UK Club might otherwise have heralded; to the benefit of P&I club members overall.
American Club said that the operation of the pooling system – and the IGA which supports it – created opportunity for the broadest international constituencies of shipowners to obtain the highest limits of cover at the lowest available price. It said that this universalism of access to the most competitive coverage justified the current, pluralist structure of the International Group, of which the IGA was a key component. The IGA was also the basis upon which the Group enjoyed its preponderant market share. This, said American, reflected the IG’s enduring approbation by the shipping industry at large, not just certain parts of it.
If “market rationalization” following a discontinuance of the IGA were to create a breakup of the Group, with the concomitant extinction of the pooling system, American Club said that in its view this would militate against the interests of the wider maritime community. Some sectors of the shipping industry might gain advantage from it, but it would more likely benefit the few at the expense of the many. “We very much doubt it would improve the present, extremely favourable, relationship between cost and coverage for the overwhelming majority of shipowners. Product differentiation, consumer freedom of choice, and the vibrant democracy intrinsic to the current system would certainly suffer as a result, concluded American Club.
Britannia said that the IGA created a framework to underpin the pooling agreement. The Club said that all clubs recognized (as reaffirmed in Oslo) the need for the IGA to provide a framework to underpin the pooling agreement. However, the Group would look to see if the IGA could be streamlined to the advantage of owners.
Britannia denied that the IGA eliminated price competition, stating that, on the contrary, it was designed as a light restraint and members were generally adept at arranging their insurance affairs so as to ensure they receive competitive quotations within the application of the IGA.
The Club concluded that, with reference to the potential merger, “the Britannia’s board considered this in depth and concluded that there were insufficient merits for our members to proceed”.
Gard said that what the clubs wanted and needed was a form of rules to maintain between them the trust that was a vital underpinning for the Group’s pooling arrangements. Gard said that currently this was the IGA and, while the specifics might change, the philosophical need would not. “This argument rather assumes that members are passive buyers when in fact the mutual system means they are actively involved in the running of the clubs, and can take a very close view of inefficiencies that might cause higher than necessary prices”, Gard concluded.